Around 55 gigawatts (GW) of renewable energy (RE) capacity, awarded between April 2022 and October 2024, is awaiting the signing of power purchase agreements (PPAs). Delays are due to surge in bids as well as a mismatch between electricity demand and bids pipeline.
JM Financial in its latest report, analysed 357 RE projects with 95 GW of capacity, awarded between April 2022 and October 2024, to understand what is causing delays in the signing of PPAs. It takes roughly 8-10 months for a PPA to be signed.
Around 224 contracts, with a total capacity of 55 GW awarded during FY23 to YTD FY25 (April-October), are still awaiting PPAs to be signed. PPAs have been signed for 40 GW capacity.
“We found that the sharp surge in bids (over 50GW in FY24 compared to 14GW/ 17GW in FY23/ FY22), a large pipeline of projects under construction (79GW), mismatch between power demand and the bid-pipeline, divergent views on the success of hybrid, RTC, FDRE projects, consistently declining prices and constraints in timely execution of projects are leading to delays in signing,” the brokerage pointed out.
Delaying factors
The government’s bidding pipeline of 50 GW of bids annually from FY24 to FY28 for RE projects resulted in a sudden and sharp surge in the number of bids, which was not in sync with demand with Discoms and preparedness of the developers, JM Financial said.
On top of that, older project capacities are still awaiting execution.
As of September 2024, a total RE capacity of 79 GW is under construction (52 GW: Solar, 15 GW: Wind and 12 GW: Hybrid), the brokerage pointed out. Additionally, 95 GW capacity (56 GW: Solar, 16 GW: Wind and 23 GW: Hybrid) is under development and may transition into an active under-construction phase in the near future.
“Hence, given the large pipeline of RE capacity additions, Discoms are not in a hurry to sign PPAs for more capacities,” it added.
Moreover, India has excess capacity during solar hours, and there are indications that there are not many takers for vanilla solar power. For instance, the conversion rate for solar projects into PPAs was 44 per cent in FY23 and 47 per cent in FY24, but it dropped to 16 per cent during year-to-date (YTD) FY25.
“In FY24, solar accounted for majority share of capacity signed at 62 per cent. However, during YTDFY25, solar has fallen to just 14 per cent. On the other hand, the vanilla wind saw much lower capacity (2.5 GW) awarded in FY24 but has an 89 per cent conversion rate. With the declining cost of BESS (Battery Energy Storage System), solar with storage is gaining preference in bidding,” JM Financial opined.
Going forward
However, as large Discoms become more active in direct bidding, providing higher assurance of offtake, and as developers prepare for the next level of growth with enhanced enablers (equity capital, developing domestic supply chain and policy support), JM Financial believes that situation is not as concerning as it may appear, and signing of PPAs may accelerate, going forward.
Furthermore, the success rate of PPAs is largely unchanged. Of the total bids awarded during FY23 to YTD FY25 (October 2024), PPAs have been signed only for 47.5 per cent (40GW) of projects. Historically, the brokerage has seen a similar 48-50 per cent conversion of contracts into PPAs.
With greater success in open access C&I (commercial and industrial users) demand, said JM Financial adding that Discoms are uncertain about future demand from their largest group of consumers (their cash cows).
Additionally, the power ministry has proposed a 15-year PPA for TBCB projects aimed at supplying grid-connected FDRE power with Energy Storage Systems (ESS).
So, Discoms are waiting for policy clarity and are not very keen to tie up conventional 25-years PPAs with developers.
“Both demand momentum and supply mix are evolving with the emergence of new drivers of demand (Data Centre) and evolving technologies affecting the supply mix. Hence, Discoms are hesitant in committing PPAs for 25 years,” JM Financial pointed out.