Renewable Energy Contracts no longer Kosher in India’s “Make it Impossible to Do Business” System

The renewable energy industry in the past couple of years has been facing a harrowing time due to India’s system weaknesses as well as the policy uncertainty. The solar developers have been facing challenges in numerous areas with some states refusing to honor contracts while some states are curtailing solar power generation using flimsy reasons to reduce their power costs. The regulators have not been helpful as they are almost completely subservient to their state political masters and do not perform the independent role they are supposed to. The federal government also has limited powers to stop the whimsical decisions of the states who make adverse decisions leading to losses of millions of dollars for developers for which there is no redressal most of the time.

Renewable energy in India is mostly sold to state distribution utilities under a long term power purchase agreement which signed between the two parties after the conclusion of a tender in which the lowest bidder wins. This is considered the final step in closing out the sale of solar / wind power and the developer can start constructing the project and raise financing as the lenders require a PPA to finance the project. But now even this PPA is no longer a guarantee that the project will be executed or not, as state regulators are sometimes refusing to accept the price and are sometimes rejecting this whole process. This leads to the developers facing a huge amount of uncertainty and losses as they would have already started constructing the project as the regulators in India take their own sweet time in approving/disapproving a project. This has happened in a number of cases in recent times. The Assam regulator refusing the PPA signed between a large solar developer Azure and the distribution utility of Assam.

While the Andhra Pradesh issue of not honoring signed long term PPAs is very well known, other states too are raising regulatory and policy uncertainties. With the government trying to push “Make in India” and “Ease of Doing Business” schemes to promote industry and commerce in India, the behavior of the regulators and the government organizations goes completely against the “ease of doing business” and is more like “ make it impossible to do business” in India.