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GBI pass-through to discoms will adversely impact wind developers in Andhra

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ET Energy World
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The pass-through of Generation-Based Incentive (GBI) from wind power projects to state distribution utilities in Andhra Pradesh, as directed by the state electricity regulator in a recent order, is likely to negatively impact wind developers, according to ICRA. 

In its 26 July order, Andhra Pradesh Electricity Regulatory Commission (APERC) had recommended GBI benefit being enjoyed by wind power projects commissioned in the state during 2015-16 and 2016-17 be passed on to state discoms by way of tariff reduction.

“The order issued by APERC is likely to adversely impact the return metrics and debt coverage indicators for wind power projects commissioned in the state during these two years, given that the project funding would have been structured based on the approved tariff and available GBI benefit," said Sabyasachi Majumdar, Group Head - Corporate ratings, ICRA.

He also said for a wind power project with capital cost of Rs 7.5 crore per Megawatt (Mw) and Plant Load Factor (PLF) of 25 per cent, the pass-through of GBI benefit to discoms would lower the project Internal Rate of Return (IRR) by 150 basis points (bps) and reduce the cumulative debt service coverage ratio by 0.14 times over a debt repayment tenure of 16 years with debt and equity ratio of 70:30.

Following the decline in wind power tariffs discovered under the competitive bidding route since February 2017, there have been attempts by the discoms in few states to cancel power purchase agreements (PPAs) signed under the feed-in tariff regime and renegotiate agreed tariffs in the PPA. 

The state governments and the regulators in these states have deterred the discoms from cancelling signed PPAs. However, the discoms in Andhra Pradesh had filed a petition before the APERC in February 2017 requesting the commission to amend the tariff approved for wind power projects commissioned in FY2016 and FY2017 and pass-on the GBI of 50 paise per unit provided by the central government to the discoms.

The APERC has allowed this request, stating that the wind power developers are recovering their costs from the approved feed-in tariff and the additional benefit should be passed on to the consumers. The regulator has cited the provisions of the wind tariff regulations approved in 2015, which allow the commission to take into consideration any subsidy or incentive available from central or state government for determining tariff for wind power projects in the state.

In contrast to the order issued by APERC, the scheme document approved by Ministry of New and Renewable Energy (MNRE) recommends that the GBI benefit being provided be treated as additional over and above the feed-in tariff approved by the regulators. APERC’s order is likely to be challenged before the Appellate Tribunal for Electricity (APTEL) or courts by the affected wind power developers, ICRA said.

Author: Sustainability Outlook Desk