Andhra Pradesh high court orders utilities to honour PPA contracts in key ruling for Indian renewables

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The high court ruling is a boon for both ReNew Power and Azure Power, who will both received their contracted PPA rates. Image: Azure Power

In a significant ruling for the Indian renewables market, a high court in the state of Andhra Pradesh has ruled that state distribution utilities (Discoms) must pay renewable companies the terms they agreed to when they signed power purchase agreements (PPAs) within six weeks.

Reneging of PPA contracts from Discoms has been an issue for some time in India and the Andhra Pradesh High Court had previously ruled that Discoms in the state could make the payments at interim tariff of INR2.43 (US$0.032)-2.44 per unit, instead of the agreed PPA tariff.

Now, however, a single judge bench has ordered the Discoms to pay back the full PPA tariff rate within six weeks, with an estimated cost to the state’s Discoms of around US$1.4 billion, inclusive of dues arising from the difference between the PPA rate and the interim rate over the last three years.

“The High Court order is a relief for the industry, particularly as it reinforces the basic tenet of contract enforcement,” said Vinay Rustagi, managing director of research firm Bridge to India.

Girishkumar Kadam, senior vice president and co-group head of the ICRA rating agency, said the ruling was a “significant positive development for the renewable energy sector and thus will provide a major liquidity relief for the affected IPPs in the state.”

“Pending resolution of PPA tariff renegotiation matter has been a key concern for the renewable energy sector and in turn affected the credit profile of wind and solar IPPs in Andhra Pradesh,” said Kadam.

A ROTH Capital note said the ruling would be a major positive for both Azure Power and ReNew Power, with ReNew standing to benefit most. The company had previously indicated that it was looking to recover almost US$200 million from Andhra Pradesh over a much longer time frame than six weeks.

Similarly, Azure was chasing around US$24 million receivables and long-term payments. Both companies’ stock prices have risen today.

But the order doesn’t deal with the wider problem of Discom finances, noted Rustagi, which he said was “the root cause for states seeking to renegotiate PPAs and delaying payments”.

It is important to note that the south-eastern state of Andhra Pradesh is not the most solar-heavy state in India, with the vast majority of solar deployment in the country concentrated in four northern and western states – Gujarat, Rajasthan, Maharashtra and Uttar Pradesh.

Rustagi said other states have been delaying payments to power producers for more than a year and that the ruling could “lay down a definitive marker”.

PV Tech Premium will be taking a more in depth look at the issue of Discom finances and Indian PPA agreements in an upcoming article.

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