Renegotiation of power pacts risks legal battle

The Economic Survey has cautioned that states undertaking renegotiation of power purchase agreements (PPAs) to take benefit of the current all-time low renewable energy tariffs will cause uncertainty and lead to legal battles.

The Economic Survey, tabled in Parliament by the Union government, said that there have been attempts by Andhra Pradesh, Karnataka and Uttar Pradesh to renegotiate or cancel the pacts signed with wind and solar power producers after tariffs fell to their lowest.

This, Crisil said in a 2017 report, could put investments worth `48,000 crore at risk. The report said any bid to scrap the pacts to seek lower tariffs will create uncertainty for producers of renewable energy and banks, already saddled with bad loans, may become apprehensive of lending to the sector.

When solar power projects started two years ago, discoms signed agreements with producers for purchase of power at rate of about `6.42 per unit. At present, solar power production has increased and many states have become power surplus. This has led to a drop in solar power cost to about `2.50 per unit. Keeping this in view, many discoms are trying renegotiation deals with solar power producers.

The Economic Survey highlighted the need for revisiting subsidies and incentives to the sector to avoid such renegotiation. Even if one state attempts to renegotiate PPAs, it would irreparably affect all future projects, pushing up the cost of capital and turning away investors. There is also a possibility of power producers going to the court if any state insists on renegotiations.