Implication Of Power Agreement Cancels To The Electricity Tariffs

Canceling power purchase agreements in 2019 created the heaviest costs for electricity users. Continuing with the proposed solar power project for 750 MW at Kadapa Solar Park could have been an avoided extra burden of ₹2,775 crores. It was under agreements signed during the previous administration. These agreements had been halted by the government in the interests of review. After a series of court cases, the government reinstated the PPAs right before the 2024 elections, thereby delaying it by four and a half years. The cost of electricity has risen because of the delay, as well as due to the rise in taxes and tariffs.

Financial Impact on Consumers

The original agreement promised that the Kadapa solar projects would start in June 2020, with an annual output of 1,500 MU. The delays have incurred many financial losses for this:

  • The waiver on BCD of solar panels remained in place till March 2023. For imported solar panels, 40% BCD is charged since then, increasing the cost by 40 paise per unit.
  • The GST rate for purchasing solar panels increased from 5% to 12%, thereby increasing the burden by 12 paise per unit.
  • Though the present market price of solar power is ₹2.50 per unit, the agreements were concluded at the old rate of ₹2.77 per unit, thus increasing the burden by 22 paise per unit.

All these result in an increase of 74 paise per unit, amounting to ₹111 crore every year and ₹2,775 crore over 25 years.

Impacts of Delayed Implementation Increase

Three companies- SB Energy Seven Private Limited, Sring Soura Kiran Vidyut Private Limited and Ayan Kadapa Renewable Power Private Limited got bids to construct 250 MW projects each. These deals were inked by SECI and state discoms in July 2018 for supplying power at ₹2.77- ₹2.78 per unit, with the margin of SECI at 7 paise. If all had gone on schedule, all these projects would have been completed by June 2020.

However, the cancellation of the agreements by the government led to legal battles that even delayed the projects further. The agreements were finally reinstated in November 2023 with the rates agreed upon previously. The delay has placed a further burden on the state as the government is now compelled to implement the projects under not-so-favourable conditions.