NEW DELHI: Narendra Modi‘s Gujarat government, lauded by India Inc for being business friendly, has stumped industry as it seeks to back out of the high tariffs contracted for nearly 1,000 MW of solar plants of the Tatas, GMR, Adani, Bollywood star Ajay Devgn, Lanco and others.
Industry leaders said the move was shocking as it raised issues about the consistency of the state’s policy, but the business-savvy Gujarat government is tossing back to corporate bigwigs a dose of their own logic: If companies can go to the regulator to raise tariffs for plants using imported coal on the ground that input costs rose unexpectedly, the state’s utility companies can also seek regulatory intervention to reduce tariffs from 12.54 per unit to 9 on the ground that the cost of building these plants was unexpectedly lower than what was envisaged when the tariff was fixed.
The Modi government took a giant leap in solar power after rolling out the red carpet for entrepreneurs at the Vibrant Gujarat Summit four years ago, and signed 88 solar power purchase agreements with 75 developers for 25 years with tariff as high as 12.54 per unit without any competitive bidding. This brought in investment of nearly 15,000 crore from a spectrum of investors ranging from real estate developers to a bollywood star.
In April 2012, Modi himself inaugurated series of solar projects in the state with much fun fare, but this has huge financial implications for the utility – Gujarat Urja Vikas Nigam Ltd (GUVNL), which is profitable, unlike state distribution firms in most states. Recent bids for solar projects under the national solar mission attracted bids as low as 7.50 per unit.
“We are paying high cost of being early entrant in solar space. However, if private players like Tata and Adani can approach the regulator and even the Prime Minister to prevent their thermal plants from making losses, the government of Gujarat too has a right to renegotiate its solar power purchase agreements,” said an official with energy department of Gujarat government. Sighting the higher cost of coal, Tatas and Adanis are seeking higher tariff for their power projects that will generate 1,900 MW and 1,000 MW, respectively.
Gujarat’s petition before the regulator has shocked investors who expected handsome profits from these projects. “The plea for reducing tariff will affect the credibility of Gujarat government since investors will always be apprehensive about the consistency of policies and integrity of agreements in the state,” said one of the project developers. Another investor said that the electricity regulator is empowered to open GUVNL’s power purchase agreements and hence arguing case is the only option.
GUVNL has approached the regulator with a plea to reduce tariff from 12.54 per unit to 9 to cut its payment liabilities. It is arguing that the state agreed to pay tariff of 12.54 per unit based on the then available perception that the project cost would be about 16.50 crore per MW. However, the project developers invested only 11-12 crore per MW and less than 30% equity, the utility has told the state’s electricity regulator in a petition.
“The above would mean that the project developers are receiving the levelised tariff of 12.54 per unit as against around 9 per unit which is the reasonable and prudent tariff. This difference of 3.54 per unit is a direct burden on the consumers of the state and is an unwanted, unjustified and windfall gain to the project developers,” it said in the petition.
GUVNL’s move came after some of the smaller project developers sought higher tariff through re-negotiation as they were unable to enjoy tax benefits under accelerated depreciation mechanism.
With increasing installations and improved technology, solar tariff has been consistently coming down and it is less than 7 per unit today. Excessive installed capacity also is bothering the state that was supposed to procure only 360 MW of solar power for 750 crore annually to meet its mandatory renewable power purchase target.
Upbeat about attracting investments in the state through capital intensive projects, Gujarat signed agreements for additional 611.5 MW, which is creating annual burden of 1,250 crore for power bodies. Half of country’s 1,759.44 MW of solar power capacity is installed in Gujarat alone.
Solar Energy Association of Gujarat that united investors is now defunct as the government never recognised the initiative to prevent it from uniting the developers.
None of the investors in solar power projects of Gujarat is willing to talk on record on the development. According to industry sources, attracted by higher tariff, number of industrialists invested in Gujarat solar projects through front companies.
“The government of Gujarat is also concerned with the public interest of the consumers getting electricity at a reasonable and economical rate. The payment of unjustified higher tariff for solar power projects by GUVNL and passing of such tariff to the consumers will seriously affect consumer interest and accordingly the public interest,” read GUVNL’s petition that will come for hearing on July 23 before the electricity regulator.