Task cannot be accomplished unless PPAs are revised

Chief Minister Y.S. Jagan Mohan Reddy’s wish to bring down wind energy tariff from the present ₹4.76 to ₹2.50 a unit is fraught with legal complications as it was fixed by the Central Electricity Regulatory Commission (on the basis of Feed-in-Tariff mechanism) in 2013 by factoring in capital cost and other conditions and duly approved by the A.P. Electricity Regulatory Commission (APERC).

If the tariff is to be reduced now, the Power Purchase Agreements (PPAs) which are in vogue for 25 years have to be revised and the chances of it happening are bleak as in such a case the developers will incur major losses in the form of lower price realisations and be crippled to repay bank loans that constitute about 70% of their investments.

The government has to, therefore, tread cautiously before tinkering with the extant regulations and think of compensating the developers for a potential reduction in tariff.

Karnataka example

A top official in the Energy Department told The Hindu that when the Karnataka government attempted a similar move to benefit the consumers, the developers went to court and the A.P. government was also likely to hit that roadblock. Another senior official said the tariff was fixed by the APERC and other State regulators prior to 2017. The A.P. government continued to pay the same tariff of ₹4-plus to those developers while there was a reduction in some States after the introduction of competitive bidding. The tariff could hence be revised downwards by following the procedures, he suggested. A source in the A.P. Power Coordination Committee said there was a justification for reducing the wind tariff as the rate of increase in the generation of energy due to the increase in the wind mast height from 80 to 120 metres consequent on the advancements in technology was higher than that of the capital cost. As such, the tariff could be reduced. New PPAs, if any, would automatically come with lower tariff.