AP discoms’ power purchase cost to rise by Rs 10,500 crore in FY22


The Andhra Pradesh (AP) High Court’s order asking the state’s power discoms to maintain the sanctity of renewable power purchase pacts (PPAs) signed before 2019 will increase their incremental power purchase cost by Rs 10,500 crore for FY22.

The court on March 15 directed the state discoms to honour the terms of the PPAs and clear the pending payments, as per the tariffs agreed under them, within six weeks from the date of the order.

The order settled a two-year-old dispute between the AP government and renewable power developers, where the state government attempted to renegotiate the power pacts citing the tariff quoted were too high. The AP decision was later followed by other states like Gujarat and Punjab.

The Andhra Pradesh Electricity Regulatory Commission had cut annual revenue requirement (ARR) for the state discoms based on average purchase cost of Rs 2.55/unit from the PPA level of Rs 4.5/unit. In an interim order issued in 2019, a single-judge bench of the court, however, approved purchase costs of Rs 2.43/unit for solar and Rs 2.44 for wind.

Vikram V, vice-president & sector head – corporate ratings at ICRA, said, assuming this additional power purchase cost is approved as regulatory asset to be amortised over a period of five years, the incremental impact on cost of power supply for discoms is estimated at 54 paise/unit, causing an upward pressure of 8.5% on average retail supply tariff for the discoms. “As a result, timely and adequate tariff determination by the state electricity regulator for AP discoms also remains a critical monitorable. Notwithstanding the pressure on cost of power supply, the average retail tariffs have remained unchanged for discoms as per the tariff orders issued since FY2019,” Vikram V said.

A senior industry official said there is every possibility the state discoms will challenge the order in the Supreme Court.

“The discoms will do everything to buy time. Even the Supreme Court is likely to uphold the judgement of the high court as it’s a straight-forward case of maintaining the sanctity of a contract,” the official said.

“Going ahead I do not see any new wind installations in for intra-state supply. Though developers may continue with plants for interstate projects on PGCIL grid,” the official said.

The decision will however improve the overall investor sentiment for the country as a whole, which was adversely affected after the AP discom issue and several other states who followed suit, said Rupesh Sankhe, VP and power analyst at Elara Securities.