India State Utility Asks Renewable Firms to Redraw Contracts

(Bloomberg) -- India’s Andhra Pradesh has asked developers of all renewable energy projects in the southern state to cut the price of green power and disregard existing contracts, according to people with knowledge of the matter.

The state’s power utility sent letters over the last fortnight to developers including Goldman Sachs Group Inc.-backed ReNew Power Ltd., Greenko Group, Mytrah Energy Ltd, and Acme Cleantech Solutions Pvt., the people said, asking not to be identified as they aren’t authorized to speak to the media. Auctioneers, state-owned power generator NTPC Ltd. and Solar Energy Corp of India, have also been served notices asking them to reduce tariffs for 1.65 gigawatts of projects in the state to match a record low price of 2.44 rupees a kilowatt-hour.

The move comes after Andhra Pradesh cited the poor financial health of its power distribution companies and expressed an inability to afford high-priced wind and solar projects. As a beginning salvo, Andhra Pradesh decided not to enter into power purchase agreements for upcoming green projects earlier this month.

Renegotiating prices could adversely impact Prime Minister Narendra Modi’s goal of installing 175 gigawatts of renewable capacity by 2022. The South Asian nation has awarded some of the world’s lowest green energy tariffs and became the biggest auctioneer of solar and wind capacity last year, according to Bloomberg NEF.

Legal Action

Some parties who have been sent the letter are contemplating legal action.

“We’re exploring legal recourse to this situation,” J.N. Swain, managing director at SECI, said by phone.

Emails and phone calls made to offices of the chairmen of Southern Power Distribution Company of AP Ltd. and Transmission Corp. of Andhra Pradesh Ltd. remained unanswered. The state saw a leadership change after provincial elections in May.

The state had almost 8 gigawatts of installed renewable power capacity at the end of June, according to government data. It will reopen contracts despite the central government’s request to the state’s chief minister to reconsider the decision, the Mint newspaper reported Tuesday.

“This is not the question of Andhra Pradesh or renewables anymore,” said Sunil Jain, chief executive officer at Hero Future Energies Pvt. “Tomorrow, some other state can reopen contracts for some other infrastructure sector. This is going to hurt investor sentiment all round for India.”

The uncertainty has led to ratings cuts for renewable energy companies with projects in Andhra Pradesh. Ratings assessor ICRA Ltd. this month downgraded ratings for Axis Wind and Mytrah Energy’s 105-megawatt wind capacities exposed to tariff-renegotiation developments in the state.

India Ratings & Research Pvt. lowered its ratings on ACME Jaisalmer Solar Power Pvt’s rupee term loan and other debt facilities. “Any negative development that could lead to a downward revision in the project tariff or further delay in monthly payments from the off-taker could be a negative for the project,” India Ratings said.

To contact the reporter on this story: Anindya Upadhyay in New Delhi at aupadhyay22@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Rebecca Keenan, Alpana Sarma

©2019 Bloomberg L.P.