Renewable energy (RE) gencos reeling under the diktat of YS Jagan Mohan Reddy government which effectively reneged on PPAs, have found relief in the orders of the Andhra Pradesh High Court. So, what happened?

One of the first things that the Chief Minister Reddy did after assuming power in Andhra Pradesh in May 2019, was to rescind the PPAs for green energy contracts. Prior to doing this, he ran a high decibel acerbic political campaign against power purchase from RE companies. All cautionary advice from the centre as how this would damage contractual sanctity and investment climate was ignored. The Japanese ambassador representing the global investor community urged a reconsideration, this was also treated in a like manner. RE gencos rued the fact through public statements that they ever went to Andhra Pradesh.

The Reddy government went ahead with its decision and in July 2019 asked a high-level committee to renegotiate 41 PPAs. The Southern Andhra Power Distribution Company followed up by sending letters to 139 renewable power projects, asking wind power producers to reduce tariff to Rs 2.43 per unit and solar plants to pare tariffs to Rs 2.44 per unit, retrospectively. These PPAs were signed during the previous Chandrababu Naidu regime wherein for wind, the levelized (or average) tariff over 25-year period was Rs 4.83 per unit for projects without claiming benefits under accelerated depreciation (AD), and Rs 4.25 per unit for projects claiming AD benefits. For Solar, it was Rs 5.99 per unit in the first year.

A legal contest ensued over the green power pacts. On September 24, 2019 an interim tariff was ordered by a single judge. It mirrored the AP government’s stance.

Now, all this has been set aside by a division bench of the AP High Court in a comprehensive judgement. While pronouncing its verdict on many matters related to the case, the judgement noted that in case of wind gencos, the tariffs were fixed under the generic tariff method under section 62 of the Electricity Act while for solar gencos, the tariff was fixed through competitive bidding under Section 63 of the Act. It stated, tariffs discovered through such processes cannot be undone, a severe rap for the Andhra Pradesh Electricity Regulatory Commission (APERC).

There are lessons here also for those politicians who engage in populist bluster. The state discom has been ordered to pay up the outstanding – Rs 10,500 crore – to the affected power producers within two weeks of the order.