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The Andhra Pradesh government is paying a rate of ₹11.68/kWh for power from NTPC's Kudgi power plant (seen here) while RE PPAs sought to be renegotiated due to high costs average at ₹4.54/kWh | Photo: Youtube.com

AP paying higher costs on coal, RE PPA review undermines climate, pollution goals: CFA Analysis

Andhra Pradesh government’s move to force renewable energy companies to renegotiate tariffs will eventually burn the pockets of consumers, worsen air pollution, and throw the fight against climate change out of gear. That’s the finding of the latest analysis by the Centre for Financial Accountability. By singling out renewable energy projects, while letting off costlier coal power, the government is acting against the interest of consumers and the climate, the report said.

 In a setback to renewable companies, Andhra Pradesh High Court dismissed their plea to block AP’s  move to renegotiate tariffs. The RE firms were asked to approach state regulator instead. This comes days after Union Power Minister RK Singh urged AP Chief Minister Jagan Mohan Reddy to drop plans to renegotiate tariffs as it would scare investors away.  The minister argued that the cost of coal power which is ₹4.2 per unit now, will escalate after 25 years , to around ₹20-22 per unit at present rupee value, but “the wind power projects for which PPAs were entered into in 2016-17 will continue to provide power at ₹4.84 per unit, even after 25 years”. 

The CFA analysis, based on state regulator’s FY2020 data, reveals even more unviable bargain for AP if it sticks to coal over renewables. As per the analysis, AP is set to purchase 5223.25 million units of electricity from thermal power stations at rates above ₹ 4.5/unit, in some cases as high as ₹ 11.68/unit. This means an estimated state expense of over Rs.3,000 crore on thermal power in FY 2019-2020, at an average of ₹ 5.75/kWh.

Critics view AP’s stance as pro-coal and anti RE. The CM recently wrote  to PM Narendra Modi saying  the renewable PPAs were executed for a long term of 25 years. This was purchased at very high tariffs and majorly to benefit 3 players (Greenko, ReNew Power and Mytrah Global Services). The CM said the previous government’s agreements can cause a loss of ₹4,000 crore every year for the next 22 years, the AP CM said in a letter to PM Modi.

But according to the CFA study, despite having “surplus power” AP is stuck with high fixed cost compliance with several coal plants . This ensures that the state has to pay the total fixed costs irrespective of the amount of power purchased. Fixed cost charges for coal power is draining DISCOM finances, the report points out. Consider this: 60% of AP power purchase is above ₹ 3/kWh – more expensive than new renewable energy generation. The study says that if the state replaces costly coal with renewables at or below ₹ 3/kWh would yield an annual savings of nearly 4,000 crores.

The report notes six thermal power plants in the state which from which power is being purchased at ₹ 4.75/kWh or more. Leading the pack is NTPC’s Kudgi power plant, from which the state is locked in to purchase 391 million units at an astronomical ₹ 11.68/kWh, 2.5 times the average PPA costs of RE projects in question!

AP’s tariff row is being closely watched by foreign entities who have invested in India such as Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), Canada’s Brookfield Asset Management, the private equity arms of Goldman Sachs, JPMorgan and Morgan Stanley, Dutch fund manager APG, amongst others.

The CFA analyses says new renewable energy now provides the cheapest source of electricity, at ₹ 3/kWh as opposed to at least ₹ 4.5/kWh for new coal power projects. By driving away the RE industry, the AP government is in fact condemning the state to higher electricity prices, the study concludes.