Wind Projects in Peril as Indian States Rethink PurchasesBy
Andhra Pradesh, Karnataka back out of power purchase agreement
One gigawatt of projects affected; investors plan litigation
Two Indian states at the forefront of adding renewables to their power mix are backtracking on agreements for at least one gigawatt of wind projects and are seeking lower prices, potentially dealing a blow to Prime Minister Narendra Modi’s green energy goals.
The southern states of Andhra Pradesh and Karnataka, which account for a quarter of the country’s installed wind capacity, are renegotiating or scrapping purchase agreements with developers and want power at prices lower than what had been stipulated in contracts already signed, developers said.
"We have lost 75 megawatts of our project pipeline as Karnataka has canceled 400 megawatts of PPAs and there seems to be no other option than taking legal recourse for this," London-listed Mytrah Energy Ltd. Chief Executive Officer Vikram Kailas said in a phone interview.
The developments are a fallout of India’s shift toward auctions to buy electricity from wind that brought tariffs to record lows, prompting states to renegotiate feed-in tariffs that guarantee a fixed price to producers for their power. This puts at risk the developers’ financial health if price agreements are renegotiated and could threaten Modi’s resolve to install 175 gigawatts of renewables by 2022.
Andhra Pradesh wants to pay a lower price for wind power projects than what was agreed to for 684 megawatts of capacity, people with knowledge of the matter said, asking not to be identified citing rules. Neighboring Karnataka scrapped power purchase agreements, or PPAs, signed earlier this year for 400 megawatts of wind projects, said P. Krishnamoorthy, general manager for power purchase at state electricity retailer Bangalore Electricity Supply Co Ltd.
While Mytrah’s projects are yet to be built, Bangalore-based Atria Power has lost investments of 1.9 billion rupees ($30 million) to build a 24-megawatt project in Karnataka, a company official said. International Finance Corp.-backed Hero Future Energies Ltd. faces renegotiation of the tariff for its 70 megawatts of commissioned projects out of a planned 120 megawatts in Andhra Pradesh.
"Andhra Pradesh should honor what they have signed," Hero Future Energies Chief Executive Officer Sunil Jain said. "If all these PPAs are renegotiated, you could have bad debts of millions of dollars and what’s worse is that you’ll drive investors away."
The first wind auction held in February brought wind tariffs to the lowest level in the country. Various states are now seeking the same from developers and are even reneging on previous pacts. By March, states stopped signing PPAs with projects either in development or commissioned and now the situation has escalated to reopening the pacts.
Southern Power Distribution Company of Andhra Pradesh Ltd., the state’s power retailer, has decided to renegotiate the PPAs because the same developers building projects at record-low tariffs through auctions in one state shouldn’t be selling clean energy at higher tariffs in another, people said. Negotiations are underway to resolve the impasse, they said.
An email seeking comment sent to H.Y. Dora chairman of Southern Power Distribution remained unanswered.
The forced revision of PPAs sets a bad precedent and will shake investor confidence, especially when India is a long way from achieving its clean-energy targets, according to Bloomberg New Energy Finance.
"Tariff renegotiations with even one project will be a threat to all and if one power producer caves in then there will be pressure on others to follow and reduce tariffs," New Delhi-based BNEF analyst Shantanu Jaiswal said.
According to ratings agency India Ratings and Research, there could be a substantial dip in wind capacity additions in the current financial year ending March 31. Installations could fall to 1 gigawatt to 1.5 gigawatts from an all time high of 5.4 gigawatts last financial year, the rating agency said in a recent note.
As of June, India had 32 gigawatts of wind capacity. The nation is aiming to raise that to 60 gigawatts by 2022 as part of the country’s climate pledge.