Sun Stroke For Solar Projects, Change In Rule Traps Developers

(MENAFN- Live Mint)

Uncertainty clouds 12 GW of renewable power capacity with a potential of ₹72,000 crore worth of investments awarded between December and July, after a well-meaning change in rules queered the pitch for developers trying to sell power to state discoms.

Late last year, the Centre ordered developers to use only specific locally made solar panels. Since these panels cost more, developers bid higher in the solar auctions that followed, totalling 12 GW of capacity. However, since such models are scarce and solar expansion is a pressing need, the rule was waived for projects awarded in December-July-unintentionally trapping developers since discoms refuse to buy power at the higher price, four people familiar with the matter said.

At the centre of the heartburn is India's Approved List of Models and Manufacturers (ALMM), a government-endorsed list of solar panel makers and models that ensures only high-quality products are used in solar projects in India. However, local manufacturing and technology in solar panels have yet to catch up to booming demand, creating a shortage that prompted the government to temporarily revisit the mandate. All projects commissioned on or after 1 June, 2026 will have to mandatorily use models in the ALMM list.

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Tariff trap

An executive from a renewable power company which has been affected said that despite the exemption, developers had already accounted for costlier domestic cells in their bids and quoted higher tariffs.“Now that they have been given relaxation and locally-made cells are not required, discoms are unlikely to sign power sale agreements based on the higher tariffs," the executive said on the condition of anonymity. He said the government and regulators will have to come up with a solution, either through a change in law or by cancelling the tenders and issuing bids again.

Developers compete in solar tenders issued by government agencies, factoring in likely costs, and expect to recover their costs from distribution companies, which buy power from them. This means projects can stall when a developer who has won a tender fails to find a buyer. According to industry analysts, the standoff with discoms could leave the projects stranded.

“Discoms always have an option to not sign power sale agreements for these projects. They may prefer to wait for projects which are bid later with lower tariffs. These tenders may have to be cancelled, if tariffs are not negotiated," an official with a power distribution company said on the condition of anonymity.

The development comes at a time when the government and renewable energy implementing agencies already struggling to clear the backlog of unsigned power sale and power purchase agreements. In June, Mint reported that the Centre would hold talks with stakeholders to push the adoption of uniform tariffs for renewable energy as about 30 giga watt (GW) worth of PPAs are lying unsigned.

Stranded

“Overall, about 40 GW of projects may be stranded as of now, including the 12 GW which has been bid in the first six months this year," a second developer said, highlighting the broader challenge of getting state utilities to commit to new power agreements.

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Some of the major developers who are affected include Adani Green Energy and Avaada. In March, Adani Renewable Energy Holding Twelve, a unit of Adani Green, secured a 600 MW project quoting ₹3.41 per kilowatt hour (kWh), while Avaada Energy won 210 MW quoting ₹3.42 per kWh. Both tenders were issued by state-owned NHPC Ltd.

Queries sent to Adani Green, Avaada, and the Union ministry of new and renewable energy remained unanswered.

JMK Research said in an August report that implementing ALMM for solar cells could create a shortage of domestic-content modules. This shortage could delay 20-25 GW of green energy projects over the next two to three years and increase project power tariffs by up to ₹0.5 per unit, it said. A separate JMK report said the recent reduction of the Goods and Services Tax (GST) on renewable energy equipment from 12% to 5% may lead developers of 50 GW of projects to seek tariff revisions based on the 'change in law' provision.

Cagey discoms

According to data from CareEdge Ratings, since 9 December, 2024, authorities have awarded renewable energy capacity of 12 GW till July 2025 end, including hybrid and round-the-clock (RTC) and firm and dispatchable renewable energy (FDRE) projects. While the share of plain vanilla solar capacity reduced in 2025 amid a broader shift towards storage-based tenders, solar capacity continues to be a significant component within hybrid and complex project structures.

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“Given the relaxation in domestic cell mandate till August 2025, projects bid out between December 2024 till August 2025 are likely to face delays in PPA/PSA signing by the discoms. This may in turn also require clarity on reverse change in law for approval or adoption of such bid tariff," said Girishkumar Kadam, senior vice-president & co-group head at ratings company Icra Ltd.“Nevertheless, implementation of reverse change in law could also be challenging."

Reducing costs

CareEdge Ratings estimates that using cheaper, non-domestic solar modules could reduce capital costs for these projects by approximately ₹0.45 crore per megawatt. The average cost of setting up these projects is estimated around ₹6 crore per MW.

“The revision in the applicability timeline of ALMM-II for RE tenders could place capacities awarded at relatively higher tariffs during the December 2024-July 2025 period in a state of uncertainty," said Jatin Arya, director at CareEdge Ratings. He added that developers might face“tariff negotiations, potential cancellations by ultimate offtakers, or regulatory hurdles in securing approval for the bid tariffs."

Arya said that if these bids come up before regulators for a downward tariff revision, the situation could become more complex, as developers may contend that they have already placed orders with domestic suppliers, and reversing these could result in material losses.

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