Andhra Pradesh High Court on re-determination of tariff under existing PPAs

Background

In September 2018, the distribution companies in Andhra Pradesh (Discoms) filed a petition before the Andhra Pradesh Electricity Regulatory Commission (APERC) for reduction in the preferential feed-in tariff applicable to wind power projects determined under Section 62 of the Electricity Act, 2003 (Electricity Act).

Subsequently, they also filed a similar petition impacting solar developers, requesting the APERC to revise the tariff payable by the Discoms for procurement of solar power (discovered under Section 63 of the Electricity Act through competitive bid process). They contended that the tariff discovered in other states pursuant to competitive bidding was lower than the preferential tariff fixed by the APERC and also the tariff discovered through the competitive bid process.

Thereafter, various solar and wind power developers approached the High Court of Andhra Pradesh to challenge the proceedings before the APERC. A single judge of the High Court dismissed the petitions on 24 September 2019 (Common Order), with a direction to the APERC to decide the issues raised by the developers. However, it directed the Discoms to pay interim tariff (which was lower than the tariff under the PPAs) to the wind and solar power generators until the matter was adjudicated by the APERC.

The Common Order created numerous hardships for the power generators – to the extent that in few instances even the lower interim tariff was not paid by the Discoms. Lenders to these projects were forced to declare few assets as ‘non-performing’, resulting in project developers having to seek relief from the courts to restrain lenders from proceeding against these projects as ‘non-performing assets’.

Aggrieved by the Common Order, the developers filed writ appeals before the Division Bench of the High Court. Pursuant to a fairly lengthy process of over 3 years, the Division Bench has determined several longstanding issues and provided much-needed relief to the power generators. In summary, it held that: (i) the tariff under concluded PPAs cannot be re-negotiated; (ii) financial difficulty of Discoms is not a ground to permit non-performance of the PPAs or to reduce the tariff set out under the PPAs; (iii) tariff determined through competitive bidding process under Section 63 of the Electricity Act cannot be re-determined; and (iv) since the renewable energy plants operate on a ‘must-run basis’, any arbitrary curtailment of power by the state load despatch centre (without any prior notice and not based on grid security or safety reasons) is illegal.

We discuss the key issues and the decision in detail below.

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