Petition to lower solar PPA tariff in India rejected

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The petition made by state-owned electricity distributor Gujarat Urja Vikas Nigam Ltd. (GUVNL) to cut the rate it pays for energy from 88 solar projects by 28% has been rejected.

The action was brought before the Gujarat Electricity Regulatory Commission (GERC) after GUVNL claimed solar developers were making “windfall profits” from overgenerous solar tariffs. Almost half of India's solar capacity is installed in the state of Gujarat.

There were 80 respondents to the petition including Moserbaer Energy & Development, Azure Power, Solitaire Energies and Welspun.

The petition sought to overturn the orders and taxation laid out in power purchase agreements (PPAs) by the Commission on 29 January 2010, and revise the “previous approved capital cost” of INR16.50 crores/MW (US$2.59 million).

An initial hearing took place on 23 July and another on 5 August, where lawyers representing the companies said the petition was barred as developers were working under contract conditions laid out in PPAs, and the petition breached laws including the Electricity Act 2003.

James Abraham, managing director SunBorne Energy, one of the 80 respondents to the petition who previously told PV Tech the case was a “waste of time”, said the decision sent a positive investment signal calling the verdict “clear and complete”, adding “confidence in contract sanctity and regulatory powers [are] restored, every element put to rest”.

Abraham continued that any questions people had six months ago not just for solar but for any sector dealing with government contracts for infrastructure should be laid to rest. However his concern is, “the shock from when this first launched, people are still recovering and making alternative investments, it will take a lot of time to recover”.

“The government went out of its way to point out fact by fact the petition is wrong; it underlines the sanctity of contracts, which is excellent,” added Abraham.

The ruling is also positive for India’s national solar programme, the Jawaharlal Nehru National Solar Mission (JNNSM), as it begins its second phase of entering into PPAs.

“The petition ruling will help restore faith for people entering into contracts with the federal government,” Abraham told PV Tech. “The last three to four months have been very bad with this – we are starving for funds. No solar companies have been completely pushed out, yet, frankly we just lost a lot of momentum, it will take another three to six months to see how damaging this has been, and the recovery could take longer.”

At the time of writing GUVNL did not respond to phone calls or e-mails for comment.

Solar consultant specialists, Bridge to India previously called for the petition to be overruled.

Energy consultant from RESolve, Madhavan Nampoothiri told PV Tech the petition order “definitely helps a lot in restoring the confidence in the sector. If the ruling had gone the other way, the regulatory risk would have become so high that lenders would have stopped lending and investors would have reconsidered their decision to invest in Indian solar sector”. 

Nampoothiri also said investors and developers in Indian solar, foreign and domestic “would heave a sigh of relief that the tariff at which the PPA was signed will not be lowered thereby removing the danger of lowered returns from their projects”.

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