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Rs 48,000 crore renewable projects in crisis due to tariff revision: CRISIL

Many discoms have openly voiced their reservations in honouring the power purchase agreements (PPAs)

Shreya Jai  |  New Delhi 

Renewable energy, solar, wind

As more states take the route of revision of tariffs for renewable energy projects as recent bids have gone ultra low, the sector could see a major shakeup with close to 7 GW under pressure. Rating agency expects Rs 48,000 crore worth of project capacity under threat.

Many have openly voiced their reservations in honouring the purchase agreements (PPAs). These include Andhra Pradesh (~1.1 GW), Gujarat (~250 MW), Karnataka (~900 MW) and Tamil Nadu (500 MW), which had signed PPAs/LoIs at feed-in tariffs or at much higher than the recent bid tariffs.

“Aggressive bidding for renewable energy capacities appears to have started recoiling on the industry call for renegotiation of PPAs which they signed in past at higher tariffs. Also, are known to use measures such as grid curtailment and payment delays to compel developers to offer discounts,” said in its latest report.

Bid tariffs quoted were as low as Rs 2.44/unit for solar in May 2017, down 45% compared with Rs 4.43/unit in March 2016. While for wind power, the quoted bid tariff of Rs. 3.46/unit in February 2017 was 17% lower than the lowest feed in tariff of Rs. 4.16/unit in India, said the report.

“In all, 7 GW of solar projects tendered/ awarded at tariffs of Rs 5-8/unit over fiscal 2015-2017 could be at risk. PPAs or letters of intent for these capacities, in Uttar Pradesh, Andhra Pradesh, Karnataka, Telangana and Punjab, were inked at tariffs 12-66% higher than the average procurement cost of these states. Even in wind energy, 2-3 GW of projects which were allotted or had PPAs signed over Q3-Q4 fiscal 2017 at feed-in tariffs are at high risk of renegotiation. Taken together, Research believes, investments worth Rs 48,000 crore are currently at risk,” Prasad Koparkar, Senior Director, Research said.

Research believes wind-based capacity additions are likely to fall to 1.5-2 GW in fiscal 2018 compared with 5.5 GW in fiscal 2017. Growth in solar capacity additions, too, is expected to be below the potential.

If have their way, downward revision of tariffs would adversely impact the returns of wind and solar energy projects already constructed. “A 10 paise/unit reduction in tariff impacts equity internal rate of return by 80-90 bps for wind and by 150-160 bps for solar power,” it said.

also expects that this could spark a spate of court cases and the essence of the National Solar Mission may be lost in delays.

“Banks, too, would be more cautious in lending to renewable energy projects, considering even relatively strong financially are renegotiating tariffs, without any legal grounds or force majeure conditions,” it said.

First Published: Mon, August 28 2017. 15:08 IST