With Fresh Price Lows In Auctions, Are Solar Projects Awaiting PSA’s Truly Safe?

In the last month and more, there have been multiple reports about the failure of the Solar Energy Corporation of India (SECI), a key nodal body that has been conducting utility scale solar auctions to sign PPA’s (Power purchase Agreement) with winning developers. SECI in turn blames it on the delay on the part of solar discoms to sign up for the back to back PSA’s (Power Sales Agreements) it signs with them. SECI usually charges a trading margin of 7 paise per unit to act as the go between, an arrangement that has worked very well so far, especially for developers who prefer dealing with a central entity with an obligation to pay for power sold, rather than state level bodies where the experience can be much more poorer.

How important the PPA is can be seen from even the financing for solar projects, with institutions making a marked preference for projects with SECI backed PPA’s.

In the past few months, some of the biggest auction winners are still waiting to sign a PPA with SECI. The projects include the manufacturing linked tenders of 8GW won by Adani Green, the RTC tenders, and even the record Rs 2.36/unit wins by Solarpack et al during the 2GW tender of August/September.

The ostensible reason for the delay has been the Covid disruption, and lack of demand. The demand problem is cannot really be the major issue, simply if the RPO rules are enforced. Admittedly, that hasn’t been done as one would expect, again due to the Covid pandemic.

But the unspoken issue that SECI has not spoken about  publicly, is the expectation/fear among discoms of lower prices in the future. We have seen an extreme version of the consequences  in the case of Andhra Pradesh, where a new state government is still locked in a battle to go back on signed contracts and renegotiate at new, lower rates.

The very fact that new tenders are attracting  even lower bids as we write this, indicates that we are heading for  yet another crisis. In a world where price changes in a few months is no longer a big deal, the rules don’t apply to the government or its entities, where time moves slowly. A few months or even a year, is no big deal even today, if the officer in charge can show a lower price after the long wait. No matter that the delay might kill off investor interest, and even developer interest. The foregone  benefits in terms of economic activity and environmental benefits?  God forbid if you even mention those.

The pundits will tell you that the long term cost of power will tend towards zero. In fact, even Mr R.K. Singh, the MNRE minister has repeatedly stressed that power costs will halve, over a yet indeterminate period in the future. Does that mean we have to stop everything to wait for the day?

The latest  news of a winning bid at Rs 2 per unit for the Rajasthan auction only  drives in the mixed blessings lower prices are bringing. Real pain for developers who bid for and won a few months back, and imaginary benefits for consumers who will more likely than not, have to wait fa more longer than they deserve to see a drop in energy prices.

In all the battles he has fought for the sector so far, this new battle to make discoms move  might be the toughest one for the MNRE minister yet, as most remain outside his direct influence, and willing to make their end consumers suffer endlessly for their diffidence and inefficiency.

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Prasanna Singh

Prasanna Singh

Prasanna has been a media professional for over 20 years. He is the Group Editor of Saur Energy International

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