No Renegotiation of Tariff under Concluded PPAs: A Win for Clean Energy Power Generators

By March 31, 2022 No Comments
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Attempts to renegotiate the tariff rates under power purchase agreements have been a serious concern for the renewable energy sector and, in turn, have been affecting the viability and credit profiles of wind and solar power projects in India. A recent decision of the Andhra Pradesh High Court  holds that tariff under bid-out power purchase agreements cannot be renegotiated or redetermined by an electricity regulatory commission and thereby quashed tariff redetermination proceedings before the Andhra Pradesh Electricity Regulatory Commission (‘APERC’) and directed certain power procurers to pay (even for the past periods) as per tariff specified in the bid-out power purchase agreements.   

1.    Order on Revision of Tariffs
●    The Andhra Pradesh Government had passed an Order dated July 01, 2019, to renegotiate the tariff agreed under certain power purchase agreements (‘PPA’) for solar and wind power projects (‘Power Generators’) operating in the State.
●     This Government Order was challenged before the Andhra Pradesh High Court (‘AP High Court’). In 2019, a single judge bench of the AP High Court had held that the tariff under such PPAs could not be revised. However, the single judge went on to direct that till the tariff was redetermined by the APERC pursuant to certain proceedings pending before it, the electricity distribution companies of Andhra Pradesh (‘AP DISCOMs’) should pay to the Power Generators at an interim tariff (Rs 2.44 for solar and Rs 2.43 for wind) which was significantly lower than the tariff agreed under the PPAs.
2.    Concluded PPAs Sanctity Upheld
●     Recently, on March 15, 2022, the division bench of the AP High Court hearing these appeals, has passed its judgment wherein it has held that “It is, therefore, not open for the parties and for the Commission as well to undo the tariff discovered through competitive bidding process under Section 63 of the 2003 Act”. In furtherance of this finding, the AP High Court has quashed certain ongoing proceedings before the APERC in relation to redetermination of tariff which was already determined through competitive bidding.
●     Further, the AP High Court struck down the order of the single judge (regarding payment at reduced tariff) and directed the AP DISCOMs to make payment of all pending bills at the tariff mentioned in the PPAs, within a period of six weeks from March 15, 2022. All future bills have also been directed to be paid as per the tariff in the PPAs.
●     Lastly, the AP High Court expressed its displeasure about the coercive actions taken by the Andhra Pradesh Government (through State Load Despatch Centre) in terms of curtailment of power production by certain Power Generators in the State of Andhra Pradesh as, apparently, such curtailment was not in accordance with applicable law and was on account of ‘an extraneous reason’.
Key Takeaways
   This judgment of the AP High Court would be a major boost to the various renewable power players in the State of Andhra Pradesh in terms of payment against long overdue invoices, continuation of tariff and reduced threat of curtailment of power production.
     While this judgment seems to be based on very well-established legal principles, the industry is keenly waiting to see whether the matter would travel to the Apex Court and the outcome thereat.