(MENAFN- Live Mint) As the government moves to cancel unviable renewable energy project contracts, the ministry of new and renewable energy (MNRE) on Tuesday clarified that any such cancellations will be phased and undertaken only after all viable options for executing power sale and purchase agreements (PSAs and PPAs) are fully explored.

Mint's had Tuesday reported that the power ministry has asked Solar Energy Corp. of India (SECI), NTPC Ltd, NHPC Ltd and SJVN Ltd to terminate by November-end all awarded contracts wherein the signing of power sale and purchase agreements was not feasible.

These state-run firms, referred to as the renewable energy implementing agencies (REIAs), are intermediaries in the renewable energy chain, signing power sale and purchase agreements.

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In its statement, MNRE said it is“closely monitoring” these cases, noting that PSAs for nearly 43.94GW of awarded capacity remain unsigned with state power distribution companies (discoms). The issue is significant, as prolonged delays risk slowing India's plan to add 50GW of renewable capacity each year to reach 500GW by 2030 and advance toward its net-zero target by 2070.

The development assumes significance, given that PSAs for 43.94GW remain unsigned with end procurers-the discoms-for which REIAs have issued letters of award. Many discoms have chosen to wait for tariffs to go lower, rather than sign PSAs straight away, holding up the whole process.

The vexed issue has been plaguing the sector for years, and assumes importance given the impact of delays on India's ambitious green energy targets. Given the nation's green energy transition trajectory and the net-zero target, the plan is to add 1,800GW of renewable energy capacity by 2047 and 5,000GW by 2070.

“The government with stakeholders is actively exploring mechanisms to optimize transmission capacity and improve the contracting framework. These efforts include examining the feasibility of signing PPAs and PSAs for certain awarded capacities and reviewing provisions such as the green shoe option. No blanket cancellations of the bids is being envisaged,” the ministry said.

According to experts, falling renewable power prices and surplus solar power generation is a key reason for the reduced demand for new power procurement pacts.

“Many discoms are facing the issue of surplus solar power generation and loss of unutilized power in the solar hours. This lowered the interest for new contracts and has increased the interest for storage capacity. They are looking for more round the clock (RTC) power and new bids with storage may ease the situation and garner more demand,” said Mohammad Saif, partner, strategy and transactions at EY.

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Mint reported that REIAs have also been given the option to sign the PPAs without a PSA. It also said the government has decided that the green shoe option, which had allowed additional capacity to be procured over and above the tendered capacity at the same bid price, will be dropped.

The MNRE said some discoms had expressed apprehension in signing PSAs for bids in which the likely start date of connectivity for the successful bidders is in distant future.

“REIAs have been advised to carry out due diligence by reviewing and categorizing such cases based on the likelihood of securing PSAs with end procurers. This assessment would consider multiple factors, including the configuration of renewable energy envisaged to be supplied under the bid, the discovered tariff for supply of renewable power and the expected timeline for connectivity. Following this review, only those LoAs with minimal or no prospects of PSA execution may be considered for cancellation on a case-to-case basis,” the ministry added.

Cash-strapped discoms have been unwilling to buy power from projects awarded earlier at a comparatively higher tariff, instead shopping for lower tariffs. Discoms' losses are currently estimated at about ₹7 trillion.

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The ministry said that the standard bidding guidelines for solar, wind, hybrid, and firm and dispatchable renewable energy (FDRE) have been amended to allow for cancellation of Letters of Award“that remain unexecuted beyond 12 months from the date of issuance”, the statement said.

Of India's installed renewable energ capacity of around 197GW, solar and wind account for the largest share with 123GW and 53GW, respectively.

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