Revival of Gujarat solar tariff-cut petition expected to fail

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The state of Gujarat’s electricity board, Gujarat Urja Vikas Nigam (GUVN) is appealing the rejection of its petition to lower solar tariff rates, but is widely expected to fail.

GUVN is appealing to the Gujarat Electricity Regulatory Commission (GERC) against the regulation’s decision to reject the petition. Gujarat is home to more than half of India’s installed solar capacity.

The petition proposed a cut in solar tariff rates as agreed in closed contracts between the electricity company GUVN and solar project developers.

The ruling affects 88 PV plant contracts, with a combined capacity of 971.5MW or 1550 million kWh of electricity annually.

The petition claimed the agreed average tariff of INR12.54/kWh (US$0.198/kWh) was too high for developers, who were making unfair “windfall” profits. The petition called for the tariff to be reduced, two years after signing contracts, claiming developers had deliberately overestimated project costs.

Solar consultancy firm in India, Bridge to India has previously claimed the petition is “fundamentally flawed” and is unlikely to be accepted.

Madhavan Nampoothiri from business consultancy RESolve India told PV Tech unless GUVNL provided additional arguments to the claim developers are making excessive profits, “the proposed tariff cut will be rejected”.

According to Bridge to India, on the 29 January 2010, the finalised tariff of INR12.54 per kWh was decided by the Gujarat government for solar power based on a capital cost of INR165 million per MW (US$2.6 million per MW). The final project costs ended within INR120-130 million per MW (US$1.90-US$2.05 million) – the petition claims developers deliberately claimed higher project costs, despite there being few installations and higher development costs at the time the tariff was agreed.

Bridge to India’s head of market intelligence, Jasmeet Khurana said the petition was rejected previously from a lack of evidence that developers were making excessive profits, from GUVNL, and they might have submitted more evidence.

Kurana told PV Tech although developers are confident the appeal will not go through “these repeated attempts to seek a tariff revision are extremely negative for investor confidence”.

Nampoothiri concurred “it’s definitely not sending a positive signal”. If the appeal, and then a tariff cut is approved “it will set a bad precedent for the entire sector and will be a big blow to investor confidence”.

Kurana also highlighted the effects of petitioning against already signed and agreed contractual agreements.

“It is a very negative sign that the off-taker is uncomfortable in upholding the existing contractual obligation. As an investor or a lender, there would always be a reason to worry. Also, developers who are looking to sell a stake in their projects will find it extremely difficult to find buyers at the right valuations,” said Kurana.

If the appeal is accepted, the developers will present their case to show that they are not making excessive profits. Kurana said: “This should not be very difficult to prove. Even if the appeal is accepted, I am fairly confident that the verdict will not go against the developers.”

Previous analyses by Bridge to India concluded there is “no reason to believe that the developers are making excessive profits”. The GERC appeal hearing is scheduled for 16 November at 11.30am.

Approximately INR80 billion (US$1.26 billion), invested in Indian solar, is at stake – also other investment in India could be shaken due to the petition towards the overturning of a closed contract spooking investor interest.

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