Changes in concessional provisions for renewable projects in Andhra Pradesh to bode well for regional distribution utilities

The Andhra Pradesh Government has made several key changes to its policies on solar, wind and hybrid power, effectively taking more control over setting tariffs from such power generation units. However, the amendments made would limit the inordinate benefits provided for the development of solar and wind projects, says GlobalData, a leading data and analytics company.

Nirushan Rajasekaram, Power Analyst at GlobalData, comments: “India is blessed with significant renewable resources, which the government is keen to utilize to meet the future power requirements of the nation.

“In 2015, India established a target of having 175 gigawatt (GW) installed capacity by March 2022 and formulated various policies, driving the renewables market. As of 2018, cumulative installed capacity of renewables in the country stood at 125.8GW. The rapid adoption of renewables was supported by the provision of subsidies and incentives such as tax breaks, accelerated depreciation (AD), no import duties on equipment, open access and baking charges.”

The provision of fiscal benefits allowed developers to offset the high costs of renewables and become cost-competitive with conventional sources of power generation. Similarly in Andhra Pradesh, the government provided many fiscal benefits including generous concessions on banking and wheeling charges, which helped in driving the state to become of the top markets for renewables, particularly for solar.

Rajasekaram continues: “As with other states, mandates in Andhra Pradesh dictate that distribution utilities must take power from wind and solar projects, as they enjoy must-run status, which forces utilities to back down thermal, while paying them a fixed charge as obligated under the PPA. If solar and wind power developers decide to take back the energy banked by them, the utility must give the power for which it has paid both fixed and variable costs.

“However, the fixed charges paid by the utility for backing down other sources, in order to accommodate renewables, remain an avoidable sunk loss to the utility. In addition, un-utilized banked energy at the end of the year is deemed purchased by the utility, which further adds to the financial burden on the utility.”

Changes made to state policies are intended to promote renewables in a comprehensive manner, reflecting current market dynamics within the state. Technology prices are falling, which coupled with the existing incentive structure offers inordinate economic benefit to developers at the expense of distribution utilities.

Rajasekaram concludes: “Although this move is intended in protecting government interests, this could have wider ramifications, potentially slowing down the market for renewables and consequently impacting the country’s 2022 target. Other states with significant renewable capacities such as Tamil Nadu and Karnataka could follow suit, as respective distribution utilities face similar predicaments. In addition, this could create a level of uncertainty in the renewable sector impacting investor optimism.”

More Media