The October edition of the India Solar Compass, a quarterly market analysis report by Bridge to India, has analyzed the emerging market for the resale of PPAs in Gujarat, India.

According to the new research, there is rising anxiety among photovoltaic project developers, who are looking to sell their power purchase agreements (PPAs) before even starting construction on their projects. The lack of experience of companies operating in photovoltaics has been cited as the main reason.

It found that, as projects approach their deadlines for commissioning, with various projects yet to begin construction, there is rising anxiety amongst the developers, thus leading them to sell their PPAs.

“A number of developers are looking for buyers for their PPAs to make an exit from their projects before even starting on construction,” stated Tobias Engelmeier, managing director of Bridge to India.

As per the traditional contract, a PPA cannot be transferred to a third party for a period of five years from the date of the commissioning of a project. However, if the project is developed under the name of the company that has signed the PPA, a third party can develop the project by acquiring the same company.

According to Bridge to India’s analysis, so far the criteria for the selection of the developers appears to have been compromised, since many of the projects have been allocated to companies lacking prior experience in photovoltaic project execution or collaborations with technology providers.

Although such developers have signed PPAs with the state utility, they may not intend to move ahead with their projects. These projects have been acquired under Special Purpose Vehicles (SPVs) backed by cash-rich traders, merchants and a few small-scale industrialists.

The analysis also highlights that the buying of PPAs is risky, as the role of the developer is kept hidden from the government until the complete transfer of ownership after five years. Also, a large part of this transaction – more than 50 percent – is typically paid in cash and, hence, is unaccounted for. Although the risk is greater for the party selling the PPA, any such transaction which goes unstated can raise questions on a company’s balance sheets.

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