Centre proposes uniform tariff for renewable energy procurement by states

Monthly revision of rates for states to purchase RE

In a sweeping change, the Union Ministry of Power has proposed a uniform tariff for renewable energy (RE) procurement by states. This will apply to the projects offered by the Centre through SECI (the erstwhile Solar Energy Corporation of India), a Central government enterprise and nodal renewable projects tendering body.

While the reverse-bidding mechanism will continue for RE projects, SECI will calculate an average tariff every month for every source —solar, wind, hydro, and hybrid.

Sector executives said the move was to ensure states did not renege on their contracts to purchase power from renewable sources.

In recent years, several states stopped procuring renewable power or cancelled their power-purchase agreements (PPAs) with project developers after tariffs went down in any other tender.

In 2019, Andhra Pradesh cancelled all PPAs with renewable energy projects, citing the tariff as too high, hitting projects worth 11 GW.

In a notice issued by the ministry to key stakeholders, including the states, in the renewable industry, it has notified a draft amendment to the Electricity Rules, 2022, citing three proposals, one being a uniform RE tariff.

“There shall be a different Central pool for each of the sectors like solar, wind, hybrid, hydro, small hydro power, and power from any other renewable energy resource including storage or their combination thereof as may be notified by an order of the Central government. Provided that such a Central pool shall be for five years and after that a new pool will be formed,” said the notification.

The implementing agency, which in this case is SECI, will compute monthly tariffs for states. The project developer that bid for the project will get the tariff it has quoted.

For instance, if in tender A the price discovered is Rs 2.5 per unit and next month in tender B, it is Rs 2 per unit (for any given project capacity), SECI will compute an average tariff for that month for states.

“States are notorious in cancelling PPAs and/or not purchasing RE power, mostly citing a fall in tariffs in some other tender or project. The Centre is taking that excuse away. The project investor will get the tariff it signed with the SECI,” said a senior sector executive.

After the pandemic came, the situation for renewable projects worsened. Projects of around 20 Gw face uncertainty with no assured buyers and states cancelling PPAs.

Renewable energy projects across the country face mounting dues from power distribution companies (discoms). 

“The proposed move is a step in the right direction, as states will not clamour over what is the lowest or best price. Developers will bid according to market movements and a dedicated agency will give a fair tariff to states. It will be a true market-reflective tariff. We are hoping that developers will now shy away to bid aggressively low,” said an RE market analyst.

He, however, added the legacy issues of discoms’ dues and states curtailing RE power would not be resolved with this. There is also the problem of states’ reluctance to sign new PPAs because their discoms continue to be financially stressed.

In the peak summer months this year, as states scrambled for thermal power when coal supply faltered, states curtailed RE power and instead bought costly thermal power from the spot market, said market observers.