Little-known solar firm gains traction, unseats NTPC in Madhya Pradesh

MP govt cancels PSA signed after record low bids in two solar parks

Rewa Ultra Mega Solar (RUMSL), a Madhya Pradesh (MP) and central government joint venture, is in a unique spot. It has unseated NTPC, a central government company, for supply of a mere 200 megawatt (Mw) of solar power to the MP government after it recently concluded a bidding round. 

This has led to the state deciding last week not to proceed with a power sale agreement (PSA) signed with NTPC on April 30. The twist in the tale is that the RUMSL auction that led to this situation has NTPC Renewable Energy, a subsidiary of NTPC, as one of its winning bidders.

It is, therefore, not just state companies versus the Centre's, but NTPC-marketed power, where it earns a margin after being procured from a developer, being replaced by NTPC's own generated power.

The case is symptomatic of all that is wrong with India’s renewable journey that has gained traction with both the government and corporate push, but facing a familiar challenge due to lack of contractual sanctity in the country.

The toss-up is whether MP power consumers should pay Rs 500 crore more over the contract period with NTPC for retaining a healthy market or should the contract be scrapped because the auction conducted by RUMSL fetched a cheaper tariff.

An excessively competitive market, with a lot more capital-chasing projects than are actually required, has brought in aggressive bids and distortions in the solar market.

Tenders floated by Union government undertakings - Solar Energy Corporation of India (SECI) and NTPC - are particularly at the receiving end of newer tariff levels reached in bidding rounds conducted by state governments. These rounds often throw up tariffs that are lower by a fraction of a paise during the auction process.

The RUMSL bid round for Shajapur solar park on July 19, for instance, saw NTPC Renewable Energy offering the lowest tariff of Rs 2.35 for Unit 1 of 105 Mw and Rs 2.33 for Unit 2 of 220 Mw. Talettutayi Solar Projects Nine, a wholly owned subsidiary of SolarArise India Projects, offered a tariff of Rs 2.339 for Unit 3 of 125 Mw.

According to a press statement issued by the state government on July 22 after the conclusion of the bidding rounds, the tariff is 30 per cent lower than the lowest solar power tariff achieved by MP so far and around 40 per cent lower than its weighted average solar power purchase cost.

“With these tariffs achieved in Agar Shajapur solar parks, state distribution companies (discoms) will save Rs 4,685 crore over 25 years - around Rs 2,018 crore in present value discounted terms (compared to the state average power purchase cost),” said the statement.

Nonetheless, just as NTPC, companies that have already signed either a PSA or power purchase agreement (PPA) after finalisation of auction winners see state discoms reneging on contracts. There are PPAs where back-to-back PSAs have not been signed. PPAs are signed by the nodal agency and the developers, while PSAs are signed with the state government-owned power retailers or discoms.

“Although this is not good for the regulatory and policy stability in the renewable sector, it is a saving grace. At least the money has not been lost because the project has not been constructed, even though the business plan gets delayed,” says a senior executive in a private equity firm that invests money into renewable power.

The PSA, which NTPC signed with MP Power Management Company, the holding company of the state’s three discoms, even had approval from the state regulator. The sanctity of regulatory approval is also, therefore, at stake.

A senior official with a state government says, “Withdrawal from the PSA happens because it is the responsibility of the state government to provide cheap electricity to consumers.” 

In the case of Madhya Pradesh, an official said it was NTPC which went ahead and reduced the offered power volume to 200 MW from 300 MW being originally negotiated. “We neither want to burden the consumers nor have we reneged on the contract first. It was NTPC which went back on the offer of 300 MW.” A spokesperson of NTPC did not comment. A person close to the negotiations, however, said delay by the state in finalizing contract terms which were under negotiation since last year led it to offer 100 MW from ABC Renewable Energy’s project to Puducherry which finalized a contract earlier. Madhya Pradesh signed the PSA for 200 MW in April so the contractual obligation was to supply only that quantity.

Renewable power has a must-run status. Once a contract has been signed, discoms are under obligation to pay the generator, even if they do not draw the power. This has led to a situation where nearly 19 gigawatt of renewable energy capacity tendered by SECI could not be tied up due to unwillingness by discoms to sign agreements, according to an estimate done in April.