Green companies may slip into red if forced to cut tariffs: Banks

NEW DELHI: Banks have redflagged the threat of renewable energy plants becoming nonperforming assets if states continue to arm-twist project developers to cut tariffs for old contracts that were signed when costs were higher.

In an August 9 letter to the secretary, ministry of power, the Indian Banks’ Association has urged prompt intervention on behalf of the developers and cautioned the government that such actions by state distribution companies (discoms) would discourage domestic and foreign investors as well as lenders in the sector. ET had on August 7 reported that the IBA may seek the Centre’s immediate intervention in the issue.

‘Renegotiation of PPA Worrying ’
At stake is the ambitious target to add 100 Gigawatts of solar energy capacity by 2022, which is required to fulfil India’s commitments in the Paris Climate Accord, the association said.
The problem arose following recent auctions for both wind and solar energy, which saw tariffs drop sharply, falling to Rs 3.46 per kwH in the case of wind in an auction conducted in February and Rs 2.44 per kwH for solar in an auction in May.

Since then discoms in Gujarat, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Karnataka and Jharkhand have been trying to renegotiate earlier power purchase agreements (PPAs) they had signed – or were about to sign – seeking lower tariffs, while developers have been resisting.

“After the recent auction for wind power projects, some states have started renegotiating for downward revision of tariffs,” VG Kannan, chief executive at Indian Banks Association, said in the note to the government.

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