Economic Survey 2018: Respect purchase pacts to avoid NPAs, revisit green energy subsidies

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The Economic Survey 2017-18 tabled by Finance Minister Arun Jaitley in Parliament on Monday has called for respecting the power purchase agreements to ensure the government’s renewable energy capacity addition targets are met and no new non-performing assets are created. Not enforcing them may jeopardise its ambitious target of achieving 175 GW of renewable energy by 2022, the economic survey has warned.

The Survey has also called for revising subsidies being given to the renewable energy sector.

The Survey has pointed out that recent auctions for solar and wind power procurement have led to a discovery of very low tariffs, much lower than the feed-in tariffs which are fixed by the regulator for power produced from renewable sources. A feed-in tariff is a generally fixed tariff at which any developer, if willing, can supply the power at the rate fixed.

Tariff for wind power, discovered through auctions, has fallen to a historic low level of Rs 2.64/KWh, much lower than the lowest feed-in tariff for wind at Rs. 4.16/KWh.

 

The Survey has said that auctions to discover wind and solar power tariffs had thrown up very low rates. Though this is welcome, it has also possibly contributed to some demands for renegotiation of the already signed PPAs, the Survey has said in its chapter on “Sustainable Development, Energy and Climate Change”.

“One of the principal expectation from the government is the enforcement of PPAs. This is especially crucial considering the government’s ambitious target of achieving 175 GW of renewable energy by 2022,” the Survey said.

Pointing out to a report by research agency CRISIL, renegotiating the tariffs could result in risk for investments worth Rs. 48,000 crores.

The Survey has warned that renegotiation of PPAs may force banks, already facing the issue of non-performing assets, to become apprehensive of lending to the sector in the future.

The Survey has also said that it might be time to reconsider the subsidies being extended to the renewable energy sector.

“Currently, the levelised tariff is approaching grid parity. There is a case for revisiting the subsidies and incentives being given to the renewable energy sector,” the Survey has said.

Renewable energy is placed under priority sector lending and bank loan for solar roof-top systems is treated as part of home loan/home improvement loan with subsequent tax benefits. Sops offered by the government to the sector include generation-based incentives, capital and interest subsidies, viability gap funding and concessional finance.moneycontrol