Change in form of Indian power purchase agreements may occur, says UK developer

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With two of India’s state electricity regulators considering distribution company calls to reduce the length of power purchase agreements, the CEO of U.K.-based developer Proinso said a new model for the sale and purchase of renewable energy may be needed.

With Proinso citing India as one of its key markets, chief executive Mark Randall told pv magazine the idea of fixing the price of renewables-sourced electricity for 25-year periods may have to change as equipment costs continue to fall.

Randall, however, said slashing the length of contract to as little as five years – as cash-strapped discoms in Andhra Pradesh are demanding – could constitute a retrograde step for Indian solar.

“It all comes down to the return on investment,” said Randall, who speculated the unit price for solar electricity would inevitably rise if developers were only guaranteed a return for a short period. “I’m just trying to imagine how they’re looking at calculating that [for a five-year period], how it can make financial sense.

“At this moment, the idea of a five-year PPA would be highly unusual, in terms of how much they’d have to pay to developers. As is always the case, the devil is in the detail.”

A backward step

The chief executive of Slough-based Proinso said a rise in electricity prices caused by shorter PPAs could see Indian solar swiftly return to being perceived as a subsidized power source, rather than one that can compete on terms with conventional generation.

He suggested a hybrid form of power purchase agreement, incorporating elements of the current model and a merchant aspect could be a way forward.

“What you could do is have a certain PPA, for ten years or whatever, and after that it goes to a strike price, we could end up with something similar to that eventually.”

pv magazine today revealed the chairman of the Andhra Pradesh Electricity Regulatory Commission has written to the state’s Department of Energy requesting the AP advocate general give a decision on distribution company demands to move to five-year PPAs.

Karnataka Electricity Regulatory Commission mooted a move to ten-year power supply agreements in its latest discussion paper and Sreenivasa Rao, a consultant at Bangalore-based Vineeti Consultants, told pv magazine the optimal length for PPAs would be 10-15 years.