THE decision of the government of Andhra Pradesh to direct its DISCOMS to enter into long-term PPAs for purchasing 7000 MW or 17,000 MU solar power per annum from Solar Energy Corporation of India (SECI) for a period of 25 years in three tranches from September 2024 (3000 MW), September 2025 (3000 MW) and September 2026 (1000 MW) and granting approval to the proposal by APERC(Andhra Pradesh Electricity Regulatory Commission) within three days is questionable and detrimental to the interest of the state for various reasons.          

The demand approved by APERC for the fourth and fifth control periods in its order on long-term load forecast, procurement plan, etc., is more than the forecasts made by the CEA by about 10,000 million units(MU) per annum from 2024-25 to 2028-29. Since the demand forecasts are estimates and indicative, their veracity has to be tested on the anvil of factual position that is being experienced. The order of APERC does not indicate the factual position for the fourth control period. As per the information furnished by AP DISCOMS, substantial surplus power has been backed down every year from 2015-16 to 2019-20 and huge amounts of fixed charges are paid therefor. For the year 2019-20, an abnormal surplus of 10,300 MU was backed down and Rs 883.20 crore was paid towards fixed charges, and at the same time, the DISCOMS purchased 3757.42 MU from the market and exchanges and paid a sum of Rs 1491.40 crore. This shows that the power they have been constrained to purchase from wind and solar units under PPAs in force is unwarranted and cannot meet peak requirements. Earlier, the DISCOMS informed, in a reply given to Prayas Energy Group, that 90 to 95 per cent of power was backed down in order to purchase ‘must-run renewable energy’. It confirms that a substantial part of thermal power being backed down can meet the demand of agriculture.

AP DISCOMS can get additional power from four gas-based power plants in the state with whom they had long-term PPAs, i.e., GVK II, Gauthami, Konaseema and Vemagiri, with a total installed capacity of 999 MW, which has been stranded since 2013 for want of a supply of natural gas as allocated by the government of India. 

Further, a case relating to the purchase of power from the project of Hinduja in Visakhapatnam with an installed capacity of 1040 MW is pending in the supreme court. If the supply of gas is resumed to the four gas-based power plants, more than 15,000 MU will be available per annum.  About 16,000 MU of renewable energy is already available to AP DISCOMS under PPAs in force, and it far exceeds the obligations of the DISCOMS to purchase the minimum percentage of renewable energy fixed by APERC under the renewable power purchase obligation order. Even after taking into account the need for additional power to agriculture to meet the requirement of new connections to be given every year, an additional 7000 MW will not be required.  The present surplus, likely availability of 15,000 MU from four gas-based stations and Hinduja’s project, and 17,000 MU that the existing DISCOMS have been supplying to agriculture put together would work out to a whopping surplus of about 42,000 MU!  It will take several years to utilise this power to meet the growing demand of non-agricultural consumers of the existing DISCOMS.        

In the draft regulation of APERC, it has pointed out several problems arising as a result of entering into long-term power purchase agreements for procuring renewable energy on an unwarranted scale. If such problems persist, when about 50 per cent (7793 MW as per the retail supply tariff order for the year 2021-22 added over a period of two decades) of the total power portfolio of the DISCOMS is renewable power, the addition of another 7000 MW solar power within a period of just two years (from September 2024 to September 2026) would further intensify such problems. Obviously, APERC did not consider the above-mentioned views expressed by itself, when it gave its approval to the proposal of the DISCOMS for procurement of 7000 MW solar power from SECI.

Based on the submissions of the DISCOMS, APERC has maintained in its order that “the Commission is satisfied that the proposed purchase of power will not cause any burden on any consumer category as the purchased power is meant for being supplied to the agriculture sector, the cost of which will be completely borne by the AP state government. Equally, the existing DISCOMs will also be freed from supplying power from their own resources to the agriculture sector, and eventually, the supply activity will be taken over by the AP Rural Agriculture Power Supply Company (AP RAPSCom).”  These arguments are untenable.

Since the free supply of power to agriculture is being implemented by the DISCOMS as per the policy of the government of AP and its commitment to provide subsidy completely, the need for freeing the existing DISCOMS from a free supply of power “from their own resources” to the agriculture sector does not arise.

With the availability of additional surplus power to the DISCOMS, the existing DISCOMS will continue to be saddled with high-cost power under the power purchase agreements in force. On average, the cost of service per unit for each category of non-agricultural consumers will increase. The need for backing down surplus power, especially of AP Genco, and paying fixed charges, therefore, will continue. In such a situation, either charges or need for a subsidy from the government, or both, to various categories of non-agricultural consumers will increase. Engineers, staff and workers of the AP Genco, Transco and DISCOMS would become surplus. Their job security would be at stake.  Prestigious public sector utilities like AP Genco, built and developed over the decades with public money and efforts of engineers and workers, will be debilitated. Therefore, the contention that “the proposed purchase of power will not cause any burden on any consumer category” is fallacious. Formation of a new DISCOM exclusively for the supply of power to agriculture would be attractive to new private DISCOMS that may come up in urban areas, if the proposed moves of the Modi government come into effect, and facilitate cherry-picking, without any responsibility to supply power to agriculture and rural consumers. 

Since the proposed solar power has to be transmitted from the plants of Adani in Gujarat, etc., transmission losses will be higher. If exemption of inter-state transmission charges provided to solar power plants set up to 2025 expires, such charges also will have to be paid. Since the central government is not providing costs of such exemption to the central transmission utility PGCIL, inter-state transmission charges will increase to cover that cost also. Central GST, if applicable, will also be additional. The inescapable conclusion that one can draw from this development is that the central government through SECI and Andhra government worked out this arrangement to benefit corporate houses of their choice. 

 Compared to two rupees per unit of solar power discovered through competitive biddings in the country, Rs 2.49 per unit offered by SECI, plus inter-state transmission losses, etc., even if a minimum difference of Re 1 per unit is taken into account, for purchasing 17,000 MU per annum, the avoidable additional burden on the state works out to Rs 1,700 crore per annum! For 25 years, it works out to a minimum of Rs 42,500 crore!

While one can agree that there is a need to promote renewable power, considering the ground situation in AP, renewable energy capacity addition at a slower pace and in a decentralised and phased manner, setting up plants in the state itself, is a better option. This will not only result in benefiting from the constant technical and economical improvements in renewable energy but also in the smoother integration of renewable energy with the grid.

APERC, in its approval given to the DISCOMS, has quoted commitments given in international fora by prime minister Modi on adding capacities of renewable energy for justifying the decision of the Andhra government and its approval. What is of paramount importance is the requirement of power by the states and their right to take decisions to suit their requirements.

Talking about environmental protection and control of pollution and measures to be taken for the same, on the one hand, and allowing setting up of unwarranted coal-based thermal power plants in the country on a large scale, leading to the stranding of an abnormal generation capacity, auctioning coal mines and allowing foreign direct investment in coal mining in the country, and allowing deforestation for industries and mining, on the other, confirm the dichotomy in the approach of the central government and its real intention of providing opportunities to international finance capital and indigenous corporate houses for investments at the cost of larger public interest.

It is not a question of the authority of the commission to give approval to the proposal of the DISCOMS; it is a question of propriety to ensure transparency, accountability and public participation in its regulatory process on such a crucial issue. When the proposed power is not required, coming of the issues of PPA and tariff before the appropriate commission for its consideration cannot automatically protect the interests of the consumers, with approval given for procurement of that power becoming a fait accompli.