Green power pacts result in losses for 3 Big Tech firms

In a rare occurrence, India’s falling real-time renewable energy tariffs are causing losses to Big Tech firms. The reason: a mechanism aimed at ensuring price stability and managing risks. Meta, Amazon and Microsoft are incurring losses on their green energy power purchase agreements (PPAs) that are based on Contract for Difference (CfD), said four people aware of the development. Power producers and buyers agree to pricing under long-term pacts. When such agreements are based on CfD, either party has to pay the difference between the contracted and the actual price to the other. In case the market prices are higher than the agreed-upon ‘strike price’, the power producer pays the differential to the procurer–in this case, corporates. But if the market price is lower than the contracted price, the company has to pay the differential to the developer.

With the prices falling below ₹1 per unit last month, the tech firms that signed CfD-based longterm PPAs are witnessing an average loss of around ₹1 per unit. Corporations and generators enter intoCfD-based PPAs for risk management and assured prices. For large corporations, these are important to earn carbon credits.

“The CfD contracts are under stressgiven the renewable energy prices trajectory,” said one of the four people cited above, requesting anonymity. “The price touched record lows last month and the recent trend is a rare development. The losses to corporates tied up in CfD-based PPAs would also be unprecedented, although unquantifiable as these PPAs are mostly private,” said an executive with an energy exchange cited above who also did not want to be named. “There are not many corporates in the country who have tied up such PPAs. The major players include the global tech giants.”

Queries emailed to Amazon, Meta,and Microsoft remained unanswered till press time.

The average market-clearing price (MCP) on the Indian Energy Exchangeduring solar hours (11:00-16:00 hours) in May was ₹2.2 per unit against ₹3.5 a unit a year earlier, with prices in some time blocks at nearly ₹0 per unit. The average MCP in non-solar hours (00:00-11:00 hours and 16:00-24:00 hours) in May was ₹3.8/unit vs ₹5.2/unit a year earlier.

AEI New Energy Trading Pvt. Ltd, a subsidiary of Amazon Inc, has a 20-year PPA at ₹2.72 per unit from 100 MW (AC)/135 MW (DC) solar project in Rajasthan. Last August, Microsoft signed a PPA for 437.6 MW of green attributes in one of the largest corporate renewable deals in the country.

Suddhasatta Kundu, directorpower sector advisory at Nangia & Co LLP, said, “In the short term, there may be a reduction in solar price; however, in the long term, CfDs will be a favourable risk-mitigation instrument for the buyer. Green attributes requirement would certainly drive, but it will not solely be the driving factor.”

Publication – Livemint

By Suddhasatta Kundu