Industry Reacts to Stay on AP Order for PPA Review

The Andhra Pradesh High Court ordered a stay that gave some respite but the Andhra government's action to temporarily shut wind and solar projects yesterday added to the worries.

Reacting to the Andhra Pradesh High Court’s stay on the state government’s order for reviewing power purchase agreements (PPAs),  law firm J Sagar Associates that represents ReNew Power said that the Andhra Pradesh government has ‘no right’ to issue directions to the state power discoms.

“Only the regulatory commission can issue directions to discoms. Therefore, there was no legal basis for the state government to prejudge the issue and direct reduction in tariff across the board,” J Sagar Partner Vishrov Mukherjee said in a statement.

The law firm further said that the objective of the Electricity Act is to distance and reduce interference of the government in the functioning of discoms. Under the Electricity Act, power of the state government to issue directions is limited to generating companies.

The actions of the state government were not only contrary to the Act but also against a Supreme Court judgment that renewable energy power purchase agreements can only be reopened to incentivise renewable projects, the statement said.

The high court has correctly stayed the government decisions. This is a much-needed relief since huge investment in the renewable space was under a cloud, Mukherjee added.

High Court Stay

A petition filed by the wind energy firms led the Andhra Pradesh High Court to order a stay against Andhra Pradesh government’s move to renegotiate tariffs of signed contracts. The court stopped the state’s move to cut tariffs until August 22 following the petitions filed by the Indian Wind Power Association and individual project developers.

The court referred specifically to two letters dated July 1 and July 12 issued by the state authorities. The first letter said the new chief minister of the state Jagan Mohan Reddy had set up a panel to negotiate lower electricity tariffs, while the second threatened to terminate contracts of developers who do not fall in line.

The whole episode was making the renewable energy companies anxious about the attitude of the state. Foreseeing its effect, the MNRE Minister R K Singh wrote to Reddy, strongly urging him against the renegotiation of PPAs. Later, renewable energy ministry Secretary Anand Kumar too had cautioned the state against such a move.

While the stay order was a relief for some, there was a setback too when the state shut down wind and solar plants for a few hours.

Arm Twisting

The government asked wind and solar plants with a total capacity of 3,000 MW to back down and disconnected them from the grid to balance the oversupplied grid but officials say that rules required conventional plants to reduce supply.

Shutting down wind and solar projects attracts penalties under the state’s electricity grid code, which gives renewable energy projects a ‘must-run’ status. The state’s regulator can take suo moto action against the state load despatch center and the grid managing agency.

The shutdown of these projects caused the renewable energy generators suffer losses and there is no provision for compensation in this case. According to media reports, at around 4.30pm on Thursday, about 1,100 MW of wind power generation was restored and only 550 MW solar could be partly brought online as the Sun had started setting, lowering generation.

And now, the Andhra Pradesh government seeks to challenge its electricity regulator’s decision to award ‘must-run’ status to renewable projects. This puts a question mark on the national policy to reduce thermal power generation and increase the share of RE sources in the energy mix and promote clean energy projects.

Currently, all renewable power plants across the country enjoy a must-run status. Power supply by a state despatch center is arranged in the order of their cost, starting with the lowest tariff. This process, called merit order despatch, is carried on till demand of the state is met. However, power generated from renewables is not curtailed in any case.

The recent developments have put the fate of renewable energy companies in Andhra Pradesh in limbo as the state’s decisions are hurting the RE ecosystem of the state, as well as the country.

These actions add to the market worry and could scare away investors from Andhra Pradesh and the RE sector.

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