• In the wake of renewable energy power producers being asked to renegotiate tariffs for their power generation projects agreed upon previously, Indian Banks' Association (IBA) has approached the Ministry of Power
  • The IBA is worried that retroactive tariff cuts affect the viability of concerned projects
  • It also fears that project developers may not be able to pay back loans for such projects
  • The retroactive cuts may also discourage domestic and foreign investors along with lenders in the sector, according to IBA

As renewable energy power producers in India increasingly face state electricity distribution companies (DISCOMs) asking to cut previously agreed upon PV tariffs, the developer community is seeing support from the banking sector.

The Indian Banks’ Association (IBA) has approached the Ministry of Power led by Piyush Goyal for prompt intervention of the government in checking this ‘arm-twisting’ of project developers. The IBA has written a letter to the Secretary of the Ministry of Power in this context, according to local daily The Economic Times (ET).

Some state DISCOMs in Gujarat, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Karnataka and Jharkhand are not ready to buy clean power from solar and wind project developers at the negotiated rates PPAs were signed previously or are about to be signed, according to ET. The distribution power companies want to renegotiate the tariffs to match the current market rate. The latest record-low tariff for ground-mounted PV system of 2.44 INR ($0.037) per kWh in India was won by ACME Solar in the Bhadla Solar Park Phase III tender, announced in May 2017 (see ACME Wins 200 MW At 2.44 INR Record). The lowest bid for a 500 kW rooftop solar project was even as low as 2.20 INR ($0.034) (see New Record Low Tariff of 2.20 INR/kWh in India). Wind power tariffs in India have touched 3.46 INR ($0.054) per kWh.

Developers are naturally resisting these pressure tactics. The IBA has now warned the government that such actions could discourage domestic and foreign investors as well as lenders in the renewables sector.

“Such action of states could result in a larger problem as solar projects implemented in the past at higher cost are not viable at lower tariffs being discovered in recent auctions,” said IBA Chief Executive VG Kannan. “This is a worrying trend and would have serious negative consequences for several operational and viable projects as well as the sector at large. The loans taken by developers to set up capacity may become non-performing after cancellation/renegotiation of PPAs, adding to the burden on banks.” 

Tariff reductions of the original PPA terms on which banks have agreed to lend may just make these projects unviable, which in turn might result in developers not being able to fulfil their financial commitments. “Developers should not be pressured to voluntarily offer reduction in tariff as it affects loan payments,” stated IBA’s note.

Some companies are falling prey to the pressure as was the case with Agarwal Solar Power (UP) Private Limited. The company had signed a PPA in December 2015 for a 5 MW on-grid solar power project in Mahoba of Uttar Pradesh for a tariff of 8.09 INR ($0.13) per kWh. After the ‘request’ from the state, the management accepted to revise the tariff to 7.02 INR ($0.11) per kWh, as per Indian consultancy Mercom Capital Group.