The low tariffs returned by the first federal wind-power auctions early this year prompted all state utilities to stop procurement under the feed-in-tariff (FIT) regime and refuse signing new purchase contracts, even for commissioned and under-construction projects.
Some utilities and state regulators went as far as asking old projects contracted under FITs to renegotiate rates or to match the price achieved in the auction.
This unilateral action by the states has caused much distress in the wind and banking sectors.
Speaking to media, Ranjit Gupta, CEO of wind-project developer Ostro Energy, said: "India needs foreign capital to grow its renewable-energy sector, and that money will quickly turn away if there is such blatant flouting of the rule of law."
A separate letter by the Indian Banking Association addressed to the new and renewable energy ministry (MNRE) said: "If state governments back-track on their power purchase agreement (PPA) commitments, related projects would be become unviable, and the underlying loans may not be serviced, rendering useful, productive assets to be wasted."
Taking note of these concerns, energy minister Piyush Goyal had also unequivocally stated that the legal framework had to be respected. Subsequently, the ministry officials met the state electricity regulatory commissions (SERCs) to discuss the issue.
In a letter dated 21 August addressed to the principal secretaries of seven states, the ministry stated: "It has come to the notice of the MNRE that some SERCs are not according consent for wind power projects which were commissioned before 31 March, and for which PPAs have already been signed.
"This creates an atmosphere of uncertainty in the wind-power sector, and going back on contractual documents like PPAs may not be appropriate."
The letter also pointed out that there may be no further wind capacity addition in the next two financial years unless the states sign new PPAs.
Past interventions by the ministry, starting from the wind auctions, have been successful in delivering results for the wind-power sector.
In just under a year, a programme launched by the ministry helped state utilities increase their revenues and reduce the average payment backlog for wind suppliers from 6-15 months to 3-4 months, helping the wind players to recover more than 70% of their pending dues.
A government reshuffle in early September saw Goyal replaced by Raj Kumar Singh, a former civil servant with no backround in the power sector. It remains to be seen what effect his appointment will have on policy.
While this latest intervention is largely expected to resolve the stalemate between the states and the industry, the future state of play for wind in India is expected to be largely dependent on continuing support and proactive intervention from the ministry in the immediate future.