Now Punjab Wants to Tear Up Solar Contracts

Even as the issues from Andhra Pradesh are still to be resolved, comes the news of Punjab State Power Corporation Limited (PSPCL), the key state discom, pushing for a 10 percent discom from solar power producers.

PSCL’s logic? The hit to collections during the Covid-19 pandemic, and the amazing argument that while determining the rate, the Central Electricity Regulatory Commission (CERC) and the Punjab State Electricity Regulatory Commission (PSERC) had taken into account the interest on loan capital as 13% to 13.5%. The discom claims that these rates have come down considerably.

Not just that, it also repeats the Andhra argument of subsequent auctions at considerably lower prices to push for its case.

Finally, the discount ‘requested’ is not for a limited period, but open ended, starting July 1, 2020.

The arguments are probably the best example you will ever see of why the government should not be in business. But for the fact that its consumers have votes, the same PSPCL would have pleased for an increase in tariff rates to make its consumers pay, as they have indeed been paying, for its inefficiencies. But with power tariffs in the state the highest across India at Rs 8.37, perhaps going back to its consumers has been considered unviable.

But like a true bully it targets the smallest, weakest player in the state’s energy mix. Much like many corporates who, faced with a crisis, look to chop jobs at the lowest rung first, before even considering salary cuts at the top.

The total share of solar power, at well under 3 percent of the state’s total purchases, is so little that it is almost laughable how little impact a 10 percent discount here can deliver. On top of that, most of the new solar capacity added since 2019 would be at rates competitive with, or even lower than the discoms other sources of power.

The National Solar Energy Federation of India (NSEFI), had this to say in its letter addressed to the state Chief Minister,  Mr Amarinder Singh.

“We wish to highlight the fact that the tariff specified under the PPA was discovered through a transparent bidding process and adopted and approved by the appropriate commission in accordance with applicable legal provisions. Additionally, at the time of reverse auction, the tariff was calculated considering all the applicable factors for a life span of the project, so that it becomes easy for the tariff to sustain throughout the entire project cycle and should be in a position to maintain a healthy cash flow. Since, the developers have already signed PPA, a contractual agreement, any change will not only make a project economic unviable but also contributes to a negative impact on upcoming investments.

It is to inform you that such request for discount on tariff for the project cycle is not maintainable in the eyes of law and is premised on misconstrued understanding of the provisions enshrined under the Electricity Act, 2003 as well as PPAs and settled legal principles. It is undisputed that tariff under the PPA, especially that being adopted under section 63 of the Electricity Act 2003, cannot be changed.

Hence, such request of discount on energy tariff and any other kind of assertions on to the SPDs are illegal and unsustainable. In this regard, we call upon you to continue with the procurement of power under the PPA as per the agreed Tariff. We expect your continued support for the Solar Projects to regular payments towards electricity generation in the state.”

Developers we spoke to across the spectrum, both big and small, expressed shock and horror at the move. Even smaller developers in the rooftop sector pointed out that consumers will never trust the sanctity of the price at which their power produced will be brought at, if this is what they see happening to larger players in utilities.

Incredibly, this is the same state that has PPA’s with thermal plants like Rajpura Thermal Power Plant (L&T Owned), Talwandi Sabo Power Project (Sterlite Group), and Goindwal Sahib Power Plant (GVK Group) where fixed charges are to be paid to these three plants even if the state does not require power.

The government pays Rs 8 per unit to the power plants, compared with say, Delhi at Rs 3 per unit and Haryana at Rs 2.50 per unit. Just the fixed charges to these plants would dwarf the charges being demanded off the nascent solar sector in the state.

Any give in the Punjab case will not only be a another blow to the sanctity of contracts but also open to floodgates for every other state to demand the same. If states like Karnataka, Tamil Nadu, Rajasthan which have significant solar installations today, demand the same, then we might as well say goodbye to our solar ambitions for a few years.

We find it incredible that a proposal like this actually passed through various levels and was floated. It reeks of continuing resistance on the part of discoms, when it comes to opening up for renewable energy options. That, we believe is an issue well worth understanding too. Because it flies in the face of all logic and correctness.

The MNRE, which has under Shri R.K Singh, been extremely energetic in its push for renewable energy, has not yet responded to this latest assault on the sector.