A recent attempt by one of India’s power distribution utilities has reignited fears about contract renegotiations among renewable energy project developers.
A power distribution company in the western state of Gujarat has asked the state regulator not to approve tariffs of 700 megawatts of solar power projects that it had auctioned last year.
The basis of this plea is the sharp decline in tariff bids this year. The 700 megawatts of solar power projects were auctioned last year at Rs 2.78 to 2.81 (US¢3.97 to 4.01) per kilowatt-hour. However, an auction held in January this year saw tariff bids falling to Rs 1.99 (US¢2.84) per kilowatt-hour.
The distribution company argued that the large difference (40%) in the two tariffs will have a huge financial impact over 25 years for which the solar power will be contracted for. This financial impact will be passed on to the retail consumers if the higher tariffs are adopted, the distribution company argued.
The distribution company has further urged the regulator to allow it to re-tender this capacity and seek power at lower tariffs.
The affected project developers have written to the central government to intervene in the matter and have also filed a case with the national electricity tribunal against this decision.
The entire fiasco has brought back the fears to project developers they had faced in the southern state of Andhra Pradesh. The developers had commissioned the projects but the government refused to pay them at the rate agreed upon. The government instead asked the developers to renegotiate tariffs for existing projects auctioned and commissioned years earlier as per current market prices. The developers had to knock at the doors of courts and seek assistance from the central government to remedy the situation.
As in the case of Andhra Pradesh, the investment attractiveness of Gujarat could take a severe hit if this matter is not resolved at the earliest.
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