Protect PPAs to recharge investment in renewables

In short, the said order made the discom liable to pay compensation to the generator if the contracted power as per the PPA is neither scheduled nor despatched due to the non-opening of the LC by the discom.

By Pramod Deo & Arijit Maitra

Despite the Centre’s Rs 1.25-lakh-crore liquidity infusion scheme to enable state distribution companies (discoms) to clear the dues of generators, a large number of renewable energy producers in many states remain to be paid. The situation in Andhra Pradesh is alarming due to the state government’s insistence that old PPAs for solar and wind energy be renegotiated, against the recently discovered price through competitive bidding. In this context, it is important to discuss the implications of the recent judgement of the Andhra Pradesh High Court which has a direct bearing on the survival of renewable energy investors. The issue of electricity falling in the concurrent list of the Constitution also needs to be factored in.

To address the problem of mounting dues of independent power producers (both conventional thermal plants and solar & wind generators) from the state discoms, the ministry of power had ordered that power shall be despatched by the National Load Despatch Centre and Regional Load Despatch Centre/s (NLDC / RLDC) only on production of a letter of credit (LC) for the desired quantum of electricity by the state discom. Defaulters shall not be granted short-term open access to buy power from any other source, including the power exchanges. In short, the said order made the discom liable to pay compensation to the generator if the contracted power as per the PPA is neither scheduled nor despatched due to the non-opening of the LC by the discom.

The Andhra Pradesh High Court ruled that the Centre has no authority to enforce contracts between the state discoms and renewable energy generators, and it set aside the above orders of the Union ministry. According to the High Court, the Centre had overreached powers accorded to it under the Electricity Act 2003, and the attempt to ensure that PPAs between the discoms and renewable energy generators are enforced and implemented was beyond its authority provided in the law. This situation is likely to drive many of the small players of solar and wind into bankruptcy, as they will not be able to service their debt if power is not scheduled from them. The High Court judgment creates a dilemma for the Centre: How will it attract new investment in green power to move from the current installed capacity of 98 GW to the goal of 175 GW by 2022 unless investor-interest is safeguarded.

An appeal in the Supreme Court would be a time-consuming option and the outcome too is uncertain. Since December 2014, we have had many versions of Electricity Act amendment Bills. It is not clear when and in what form the 2021 Amendment Bill will be passed by both houses of Parliament and to what extent the States will come on board. Given the exigency of the situation, as an immediate measure, the route of ordinance seems to be the only option. The power of the president of India to promulgate ordinances during recess of Parliament is provided for under Article 123 of the Constitution (legislative powers of the President). The president may, therefore, promulgate an ordinance, and even if the ordinance is to operate only for six weeks, some financial relief will be provided to the renewable energy generators. Is an ordinance the correct solution to the problem? The ambitious national target of renewable energy capacity addition calls for an urgent review of the policy framework for India. There is already a wide divergence in vision between the Centre and the states on this issue. We need to look at a long-term solution keeping in mind that the states are equal stakeholders as the subject of electricity is in the concurrent list of the Constitution. The early enactment of the electricity Bill 2021, which goes beyond the provisions for payment security for the renewables, is now an imperative.

Respectively, former chairman, CERC, and legal (regulatory matters) expert