The rapid deployment of renewable energy projects across several States in recent times has thrown State utilities’ power calculations out of gear, forcing them to rework their strategies.
A tepid growth in power demand in several States, along with the availability of cheaper power in exchanges and improved inter/intra regional power evacuation networks, have driven State planners to put fossil fuel projects on hold and revisit power purchase agreements (PPAs) to capitalise on falling power prices.
The recent drop in solar power prices to as low as ₹3.15 per unit, from ₹12 a unit barely a few years ago, accentuates the changed dynamics of power pricing.
In 2016-17, capacity additions in the renewable energy space, at 11,320 MW, were close to those of the thermal power segment, at 11,551 MW, for the first time.
Fiscal 2016-17 witnessed many other milestones in the clean energy segment. The total installed capacity of the sector crossed 50 GW, and wind and solar sectors’ cumulative capacities crossed 30 GW and 10 GW, respectively.
Distribution companies are now looking to renegotiate their agreements with power developers to bring down their purchase prices, sources in the sector indicate.
PPAs may be reworked
Manish Chourasia, CEO of Tata Cleantech Capital , told BusinessLine that one of the big risks that IPPs (independent power producers) face is the likelihood of States wanting to renegotiate the terms of the PPAs in order to leverage the drop in power prices. Since the PPA pricing commitments have been made over the long term, any lowering of the price would be beneficial to the State.
The UDAY scheme, aimed at improving the performance of discoms, is also catalysing changes.
For instance, in Andhra Pradesh, State utilities have decided to go slow on finalising PPAs with some of the renewable energy projects.
There has been a stand-off between AP Genco and the regulator over PPAs for wind projects where the tariff was fixed at ₹4.35 per unit for developers accessing accelerated depreciation benefit and ₹4.76/unit for others. The State wants the rates to be lowered since recent tenders by the Solar Energy Corporation of India (SECI) brought tariffs down to ₹3.46/unit. Ajai Jain, Principal Secretary, Energy, Andhra Pradesh, said, “There has been significant capacity addition in Andhra Pradesh and in a few other States, but the demand has not gone up. This has forced us to review our long-term plans for project mix and project implementation.”
States such as Gujarat, Rajasthan and Chhattisgarh, where there has been huge capacity build-up in renewable energy, also face a situation of oversupply.
Sunil Jain, CEO and ED of Hero Future Energies, a company which expects to cross 1 GW of installed capacity of renewables by August 2017, says solar power tariffs could breach the ₹3 per unit mark.
If that happens, it will only increase pressure on States to reconsider some of their older projects.