• PPA cancellations and renegotiations for renewable energy projects by DISCOMs may affect RE growth adversely in India, according to a report by Moody’s Investors Service Company ICRA
  • Developers may take legal route to fight DISCOMs which may take a longer time to resolve
  • Project developers may end up facing huge grid curtailment, making investments financially vulnerable
  • Investors investing or interested in investing in the sector may get wary of India’s RE market
  • Madhya Pradesh has proposed putting renewable energy generation under merit order dispatch principles against ‘must-run’ status, which would be a negative regulatory development for the RE sector   

Reiterating the view shared by several industry experts, Moody’s Investors Service Company ICRA believes PPA cancellations and renegotiations may adversely affect the growth in India’s renewable energy sector. This will not only hurt the credit profile of the independent power producers (IPPs), but will also impact investors’ interest in the sector, it wrote in a report published in August.

Electricity distribution companies (DISCOMs) in some Indian states have been reported to push IPPs to bring down solar tariffs for projects that were auctioned earlier, like in Tamil Nadu (see TANGEDCO Wants Retroactive Solar Tariff Cuts).

The government is making efforts to stop DISCOMs from taking this route. However, this step by DISCOMs is bound to be challenged in the courts by affected developers leading to a long legal fight.

Solar PV PPAs do not have any termination penalty clause which can work in the event of non-payment of dues beyond 90 days by DISCOMs. Theoretically, developers get paid once the power plant starts generating and supplies power. This exposes renewable energy power producers to the risk of grid curtailment.

ICRA points to a recent proposal by Madhya Pradesh under which the state is planning to bring renewable energy generation under merit order dispatch principles. This is a ‘negative regulatory development’ against today’s ‘must-run’ status for renewable energy, it emphasizes.  If this happens, the viability of such RE projects will depend on third party sale and/or sale to group captive customers. It will sure not be a very good situation for developers to be in, warns ICRA.

In a recent commentary,  Ind-Ra, another ratings agency, also warned that renegotiating PPAs could derail renewable energy projects in the country. It may also result in more issues of grid curtailment. With competition in the space increasing, players are continuously quoting lower tariffs, which will likely lead to a situation where an increasing number will not be financially viable anymore (see Low PV Tariff Cause Uncertainty In India).

The ICRA report can be downloaded from its website.