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APDoomed: How YSRCP’s politics of revenge on Chandrababu is harming AP

The tussle between renewable energy developers and the southern Indian state of Andhra Pradesh is intensifying. Therein hangs the future of 5.2 gigawatts of solar and wind farms, built based on their developers’ long-term power purchase agreements (PPAs) with the state-owned utilities.
 
On July 1, Andhra Pradesh’s newly-elected government of chief minister Jaganmohan Reddy announced that it has formed a committee which would work to lower the power rates that the utilities had agreed to pay developers. 
 
The developers, however, successfully petitioned the state high court to suspend the committee’s proceedings. Now, in an apparent pressure tactic to force the revision of PPAs, they say that the utilities have reduced the amount of power they are buying from renewable energy projects. 
 
Political clouds
 
This is also a part of the new government’s broader push against several contracts signed by the previous administration of Reddy’s political rival, N. Chandrababu Naidu. The goal is to “erase the image of corruption the state has acquired by the misdeeds of the previous government,” Reddy said.
 
Andhra Pradesh has been leading India’s states in commissioning solar and wind projects. Renewable energy prices have, however, fallen significantly over the years, and the new government says it is unfair that its utilities must pay high rates as the PPAs with developers extend for up to 25 years. 
 
The industry and analysts, on the other hand, contend that these projects were built when prices of solar panels and wind turbines were much greater, and the developers now need to recover their capital costs even though newer projects are offering much lower rates. 
 
Death by a thousand cuts
 
India’s electricity regulations mandate that utilities must buy power from approved renewable energy projects on a priority basis even if cheaper options—mostly from coal-fired plants—are available. Utilities can curtail power purchase from solar and wind farms only on the grounds of a technical issue.
 
However, since the July 25 high court order restrained it from lowering the agreed-upon power rates, “Andhra Pradesh has been curtailing some 40%-80% (of the power generated from renewable energy projects). We don’t have reason to believe that this is purely technical curtailment,” a senior executive at a major clean energy developer said on the condition of anonymity.
 
Since large-scale power storage facilities do not currently exist in India, if Andhra Pradesh’s discoms reduce their purchase of electricity from the solar and wind farms, developers’ finances could crumble, said Ankur Agarwal, associate director at credit ratings agency India Ratings. 
 
While India Ratings has downgraded the credit rating of four projects by Acme Cleantech Solutions, another credit rating agency ICRA has similarly downgraded one of the projects of Mytrah Energy. 
 
In all, an estimated Rs21,000 crore ($3 billion) of debt to renewable energy projects in the state is now at a heightened risk of default, according to the consultancy firm Crisil. As a result, “renewable energy firms will now find it difficult to raise funds from foreign investors,” Agarwal said.
 
The Reddy government has also moved to cancel the PPAs for 21 renewable energy projects that have been signed but not yet approved by the state electricity regulator. 
 
Waiting game
 
The now-suspended committee’s meetings with developers ended “more or less like a stalemate,” the renewable energy executive said. “There was pressure on developers to agree to a PPA revision, but nobody really budged.”
 
They have good reason not to. “It will be suicide for the developers,” said Amit Kumar, partner at consultancy firm PwC, adding that if they see Andhra Pradesh get its way, other Indian states will also push for revision of old deals.
 
Meanwhile, more and more firms will seek the intervention of courts and the Narendra Modi-led national government in the Andhra conundrum, the executive said. Developers are also likely to hold out on participating in any future government auctions to build solar or wind farms in the state, Agarwal said. 
 
This battle, following a slow year for renewable energy growth in India, could drag on for months, threatening to widen the gap between India’s solar and wind power generation capacity and the national target to more than double it by 2022.

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