Weird – Payment Defaulting Indian State plans Another 10000 MW of Solar Plants

The Indian renewable energy industry has been facing a major challenge as the state of Andhra Pradesh in the south of India is refusing to honor the wind and solar energy contacts that were signed in the last 4-5 years by the previous government. The new Jagan Reddy government which came to power last year has not paid the solar and wind energy developers saying that the PPA prices were too high and the contracts were not signed legally implying hanky panky.

Also, read Andhra Pradesh RE Sector On Shaky Grounds

Given that the state of AP has installed around 7-8 GW of solar and wind plants making it one of the biggest solar and wind states in the country, it created huge distress as developers were looking at severe cash flow issues and even debt defaults. Despite the central government, bankers as well as the private companies entreating the state government to honor the contracts, the state government has refused to budge citing the high losses being suffered by the state power distribution companies which were buying the power. Though the courts and the regulators tried to bring some relief to the developers, this did not go far, as coercive tactics such as refusing to buy solar power due to grid integration issues were used to stop buying and paying for green power. Many companies with large operations in the state such as Renew Power, Greenko and others had to reduce their operations in other parts of the country due to balance sheet distress.

Now the state government which can’t buy renewable energy power due to grid integration wants to install 10000 MW of solar power which is 1.5x times the already installed capacity of RE in that state. The government purportedly wants to use the massive subsidies it gives to the agricultural sector to fund this power plant which will be built by the government itself. A new company called the AP Green Energy Corporation Limited (APGECL) has been formed to develop this massive 10 GW of solar projects with an investment of USD 6-7 billion.  The Indian power sector is currently witnessing distress with overall power demand growth falling to as low as 1.5% last year as the economic growth has stalled. There is a power surplus in many regions of the country especially the south which has seen a RE boom in the last few years. Given this situation, installing 10 GW of solar power plants in one single state seems highly stupid if not downright insane.