Economic Survey 2017-18 suggested power distribution companies not to renegotiate old Power Purchase Agreement (PPA) signed at higher rates with Solar and Wind Power Producers, as it may adversely affect the investment in the renewable sector.

The recent auctions of solar and wind power procurement at very low rate has “possibly contributed to some demands for renegotiation” of the already signed PPAs. “Some discoms have hinted at the possibility of renegotiating the PPAs signed by them at tariffs higher than those in the recent bids,” the survey observed.

Referring to a CRISIL (2017) report, the Survey said renegotiation of the tariffs of old PPAs could result in risk for investments worth Rs. 48,000 crore and might face tough resistance from the developers and may result in legal battles.

The renegotiation of PPAs would introduce uncertainty for the sector and banks which are already facing the issue of NPAs. The banks might become apprehensive of lending to the renewable sector in the future, the Survey said. “There are cases where the developers have already made huge investments into renewable energy projects based on the expected stream of revenue,” it said.

“One of the principal expectations from the Government is the enforcement of PPAs. This is especially crucial considering the government’s ambitious target of achieving 175 GW of renewable energy by 2022,” it said.

It also suggested for revisiting the subsidies and incentives being given to the renewable energy sector. The Government, so far, has played an active role in promoting the adoption of renewable energy resources by offering various incentives, such as generation-based incentives, capital and interest subsidies, VGF, and concessional finance.

“Renewable energy has been placed under the priority sector lending and the bank loan for solar roof-top systems is to be treated as a part of home loan/home improvement loan with subsequent tax benefits,” it said. However, since the present levelised tariff is approaching grid parity, there is a need to revisit subsidies and incentives to renewable energy sector, it said.