Moves by one of India’s key renewable energy states to tear up previously-signed power agreements with wind and solar developers could have a chilling effect on investment there and across the sector, analysts warned.

The newly-elected government of Andhra Pradesh claimed “exorbitantly priced” wind and solar power purchase agreements (PPAs) signed under its predecessor were behind a “financial crisis” facing the state’s power distributors, which it said are facing liabilities of 200bn rupees ($2.9bn).

The state ordered the establishment of a committee to “review, negotiate and bring down” the PPA rates within 45 days.

Andhra Pradesh, in India’s southeast, has 4.1GW of wind and 2.6GW of solar in place, according to latest government data, with about 2GW in or nearing construction.

The government did not say how much of that could be impacted by the renegotiation efforts, but commentators questioned whether it was legally possible to enforce changes to PPAs agreed and signed under rules in place at the time.

There was widespread dismay over the potential impact on investor confidence at a time when India is chasing some of the world’s most ambitious wind and solar targets. The central government’s Ministry of New and Renewable Energy is understood to have written to Andhra Pradesh asking it to think again about the step.

Ashish Nainan, an analyst at CARE Ratings, told Recharge the Andhra Pradesh government’s actions could slow down capacity addition there and in the sector as a whole.

“The impact of the current order would not be limited to only completed projects, but it would also hamper projects which are in different stages of implementation in the state,” said Nainan, who pointed out that Andhra Pradesh is “expected to play a key role” in meeting India’s renewables targets.

“The Central Government should ensure that in such cases, necessary measures are taken to safeguard investor interests especially in cases where projects are already under implementation based on the PPAs awarded,” said Nainan.