Andhra High Court Redirects Renewable Energy Firms To Regulator On Tariffs

The Andhra Pradesh High Court has asked renewable energy companies to move the state’s electricity regulatory commission against renegotiation of solar and wind power purchase agreements.

The court said all issues pertaining to the tariffs are to be raised before the Andhra Pradesh Electricity Regulatory Commission, adding that a third party to the contract cannot give directions to modify its terms. It also ordered the regulatory body to fix rates in six months.

According to a copy of the order that was reviewed by BloombergQuint, the court said the power of the state can extend only to giving policy directions, including overall planning and coordination, but they shall not adversely affect or interfere with the functions and power of commissions.

The order came on a petition filed by renewable energy firms in July after distribution companies of the southern state curtailed—or refused to purchase—power from them. The court said curtailment cannot happen without proper notice and reasoning.

The court also directed discoms to honour the bills of wind and solar energy producers and pay them interim tariffs of Rs 2.43 and Rs 2.44 per unit, respectively. The court said this is to balance the interests of both the parties.

Some of the power producers who are petitioners in the case had signed agreements in 2015 and 2016 with the Southern Power Distribution Company of Andhra Pradesh Ltd. for a period of 25 years. The tariffs were then set at Rs 4.83 and Rs 4.84 a unit, respectively, by the APERC.

“State should act as model employer. Fairness, reasonableness and transparency must be the core values as per which the state must act,” said the order. The court has also ordered distribution companies to restore connections of solar and wind power projects of 400 MW capacity to the state’s grid—which were disconnected since July.

The Andhra Pradesh government, led by Chief Minister YS Jagan Mohan Reddy, on July 1 ordered creation of a high-level negotiation committee to “review, negotiate and bring down” the tariff of “abnormally priced wind and solar power purchase agreements” in the state, citing “huge power purchase dues” worth Rs 20,000 crore.

Following this, notices were sent to developers to reduce tariffs to Rs 2.43 per unit. Power producers then moved the Andhra Pradesh High Court on July 22.

Pending Dues By Discoms

The court said that the issue of discoms using some “subtle and not so subtle methods” to force producers to reduce tariffs needs to be addressed.

“All the parties have entered into long-term power purchase agreements and have submitted these PPAs to investors who have relied on the representations and have advanced finances,” the order said.

The court said these actions of discoms will have a debilitating effect. “As a party to the contract, the discoms are bound to discharge their functions as per the contract that is entered in to till the same is varied, modified, or set aside,” the order said.

“In this case, the respondent being a state under Article 12 is expected to behave to behave as model employee. Unfortunately, they did not.”

According to Acuité Ratings & Research, a debt exposure of around Rs 9,000 crore will be at potential risk if the state cuts tariffs on operational projects to bring it to current auction levels. “It will not only impact the investment pipeline of Rs 60,000 crore in renewable energy projects in the state over the next 3-5 years but will also send a wrong signal to the investor community regarding the sustainability of renewable projects in India,” the credit rating agency had said in a statement.

Recently, Union Power Minister RK Singh had written to Reddy warning him that renewable energy companies may take discoms to National Company Law Tribunal if they don't pay dues.