Gujarat Seeks Tariff Cut for Solar Power Plants

The Gujarat government has suddenly realized that it is paying high costs for being an early entrant into the solar business by being the first state to have a solar specific incentive policy in 2009 and is now seeking regulatory intervention to reduce the tariff that it thinks was erroneously fixed!

Solar 'Cost to Consumers'

Solar ‘Cost to Consumers’

Tuesday, July 16, 2013: The Narendra Modi government in Gujarat, long seen as the darling of India Inc for being extra-friendly with them, has suddenly surprised the solar industry investors consisting big names like Tatas, GMR, Adani, Bollywood star Ajay Devgn, Lanco and others by seeking toback out of the high tariffs contracted to them for nearly 1,000 MW of solar plants.

The state’s utility company-Gujarat Urja Vikas Nigam Ltd (GUVNL), which is a profit making body unlike state distribution firms in most states-has sought regulatory intervention to reduce tariffs from Rs 12.54 per unit to Rs 9 on the ground that the cost of building these plants was unexpectedly lower than what was envisaged when the tariff was fixed.

GUVNL has argued to the electricity regulator of the state that it needs to cut its payment liabilities. As per them, the state agreed to pay the higher tariff of Rs 12.54 per unit based on their estimation of project cost then. However, as it turned out, the project developers ended up investing much less than the estimate, less than 30% equity.

“It would mean that the project developers are receiving the levelised tariff of 12.54 per unit as against around 9 per unit which is the reasonable and prudent tariff. This difference of 3.54 per unit is a direct burden on the consumers of the state and is an unwanted, unjustified and windfall gain to the project developers,” it said in the petition.

“The government of Gujarat is also concerned with the public interest of the consumers getting electricity at a reasonable and economical rate. The payment of unjustified higher tariff for solar power projects by GUVNL and passing of such tariff to the consumers will seriously affect consumer interest and accordingly the public interest,” read GUVNL’s petition that will come for hearing on July 23 before the electricity regulator.

The industry apparently is not bemused with this move and some have termed it as shocking saying it raised serious questions about the consistency of the state policy. However, the Gujarat government’s counter is no-nonsensical and straight: if companies can go to the regulator to raise tariffs for plants using imported coal on the ground that input costs rose unexpectedly, the state’s utility companies can also seek regulatory intervention to reduce tariffs from 12.54 per unit to 9 on the same ground. Sighting the higher cost of coal, Tatas and Adanis are seeking higher tariff for their power projects that will generate 1,900 MW and 1,000 MW, respectively.

In fact, Gujarat’s ‘Solar Power Policy -2009′ was the first solar specific policy introduced in the country predating the National Solar Mission. Four years ago at the Vibrant Gujarat Summit, Modi government signed 88 solar power purchase agreements with 75 developers for 25 years with tariff as high as 12.54 per unit without any competitive bidding, attracting investment of a whopping Rs 150 billion from a spectrum of investors ranging from real estate developers to a Bollywood star. However, recent bids for solar projects under the National Solar Mission has attracted bids as low as 7.50 per unit.


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