15 project developers on the verge of commissioning their utility-scale solar power projects in the Indian state of Uttar Pradesh recently received a shock when the state’s regulator asked them to reduce the tariff for their projects.

Competitive auctions held in 2015 in Uttar Pradesh saw utility-scale solar power projects allocated to 15 developers in a tariff range of ₹8.60/kWh (13¢/kWh) and ₹7.02/kWh (11¢/kWh). All these projects are now nearing completion and 14 of the 15 developers have been asked to match the lowest bid of ₹7.02/kWh. This means a reduction of up to 18% for the highest successful bidder.

It is a near-standard practice to ask bidders to match the lowest received bid but this usually happens immediately after the auction is complete and not a couple of years later when the project developers have made all investments and are ready to feed the grid. The state of Tamil Nadu recently implemented this practice for its 1.5 gigawatts solar auction. Most of the project developers agreed to match the lowest bid without any issues.

Most auctions in India do not see a large band of bids, especially winning bids. However, Uttar Pradesh cannot be compared with states like Rajasthan, Tamil Nadu, Gujarat or Karnataka and Andhra Pradesh. Uttar Pradesh is not among the pioneering states in solar power development and thus lacks infrastructure and regulatory support that is available to developers in Rajasthan or Gujarat.

The recent auction in Rajasthan, for example, saw immense competition among developers who quoted India’s lowest-ever tariff of ₹2.44/kWh (3.8¢/kWh). This was possible because land for project had already been assigned and acquired, because transmission infrastructure for the project was already available and being park of a solar park, the project developer had access to other support infrastructure that would be needed to set up the project.

None of these conditions were available in Uttar Pradesh at the time of the auction. Additionally, the power purchase agreements signed in Uttar Pradesh are for only 12 years compared the country-wide standard of 25 years.

The timing of this decision by the regulator has jeopardised the investment of project developers. As they near commissioning date they may have limited choice between accepting the decision or challenging it in a tiring court case.

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