Payment delays by distribution companies (DISCOMs) continue
to pose a challenge for the growing renewable energy sector in India as it tries
to achieve 175 GW of renewable installations by 2022.
Tariffs have come down by 73
percent since 2010, according to a Mercom report, and the recent REWA
auction recorded the lowest solar tariff in the country - Rs.3.30
(~$0.494)/kWh (levelized tariff over 25 years). In an auction recently held by the
Solar Energy Corporation of India (SECI), bidders quoted a tariff of Rs.3.46 (~$0.051)/kWh
for a 1,000 MW
With these extremely low tariffs, developers are looking at
best-case scenarios with margins for error nearly non-existent. Payment delays
are adding to project costs as banks charge higher interest rates due to projects
being built in high-risk states known for payment issues, stymying investment
into the sector.
Tariffs have touched an all-time low and developers think
they can make these projects profitable at these tariff levels. But when dues
are not cleared on time, it affects the sector, stated a wind power developer
operating in Maharashtra. In the state, the Maharashtra State Electricity
Distribution Company Limited (MSEDCL) was not buying power from wind power
generators for the past three years. This resulted in heavy losses, added the
wind power developer.
Many developers completely rely on capital market
transactions. Delays in payments by the off-taker (DISCOMs) puts our potential of issuing bonds in jeopardy, stated a project developer.
If there is any type of default on these capital market instruments or if a
security or credit enhancement is invoked it has an adverse impact on the
efforts made to deepen the infrastructure bond markets, added the developer.
Mercom previously reported
that Tamil Nadu, Rajasthan and Maharashtra, have a track record of payment
delays and curtailment of renewable energy.
delays affect the project liquidity, the money is stuck, and yet we have to pay
back our lenders. If we fail to make our payments, lenders will have
apprehensions about financing, stated another developer.
The states of Madya Pradesh, Andhra Pradesh, Telangana and
Jharkhand are also having problems with paying on time, stated another
developer. Mercom previously reported that on the first nine months of the
current financial year (FY) the
interest costs of states and union territories that joined the Ujwal DISCOM
Assurance Yojana (UDAY) program for financial turnaround have been reduced by
Rs.119.89 billion (~$1.83 billion) when compared to the same period in FY2015-2016.
However, payment issues persist in some of the major renewable energy states.
In Bihar, the gap between power generation and demand is
huge; we do not produce even half of the state’s
demand. On top of that, we have to provide subsidized electricity to farmers, and
there are many as Bihar is an agrarian state. This ties our hands in terms of
payments and they get delayed at times, stated an official at South Bihar Power
Distribution Company Limited.
Theft is rampant. We are ourselves not able to get paid on the
electricity we sell. This has led to payment delays on our part, but now the
state [Bihar] has joined UDAY program plus the grid is being strengthened along
with monitoring software to prevent theft. In the future, we expect payments to
be on time, stated an official at North Bihar Power Distribution Company
An official at Jharkhand Urja Vitran Nigam Limited hinted
that politics plays a huge role in a state like Jharkhand where utilities have
to let off dues or provide subsidies when asked. Paying on time becomes
difficult without adequate revenues. We owe Damodar Valley Corporation and Coal
India, (it is not a big amount, and is expected be cleared in the new fiscal),
stated an official.
There have been some payment delays especially for wind, but
they are a thing of past. The state of Tamil Nadu has finally joined UDAY and
the TANGEDCO will try to create an enabling environment for renewables in the
state, added the TANGEDCO official. Payment delays of up to 4 months have been reported
in Tamil Nadu.
In Andhra Pradesh, we provide the cheapest power anywhere in
India to farmers at less than 30 paisa (~$0.005) per unit, and farmers constitute close
to 40 percent of our consumers. A lack of revenues has resulted in payment
delays, stated an official at Eastern Power Distribution Company of Andhra
Pradesh Limited. Developers have reported payment delays of 4 months in the
In Rajasthan, the number of industrial consumers of
electricity has gone down drastically. In the state, there is preferential
tariff for industrial consumers which is lower than the average industrial
power price in India. With decline in the number of consumers and revenues, it
has become an inhibitor in making payments, stated an official at Jaipur Vidyut
Vitaran Nigam Limited. According to developers, payments in Rajasthan are
delayed by about 3 months but the situation is reportedly improving.
We have curtailed from wind – we
have not even signed any new PPAs for wind projects over the past three years.
In 2016, the MSEDCL even asked Maharashtra State Power Generation Company (MAHAGENCO) to shut down thermal power projects as
prices elsewhere were lower. There are some payment delays, but is because we
have not realized our dues for the power provided, stated an official at MSEDCL.
“Tariffs are falling at a record
pace in solar due to a rapid decline in component costs, which is a welcome
development for states which will see their power purchase costs decline. But,
further drops in tariffs are in the hands of the government, which can reduce
risks by removing hurdles like payment delays, transmission issues and
curtailment, all of which are interlinked. By removing these risks, borrowing
becomes cheaper for developers,”
commented Raj Prabhu, CEO and Co-Founder of Mercom Capital Group.
went on to say, “At
the end of the day states cannot pay developers if they don’t raise power tariffs and bring in revenues. A
lot depends on the success of UDAY and everything is coming to a head at a
crucial time when Indian solar installations are on a path to more than double
from 4 GW installed last year. As installations double, power purchase bills
will also jump. If states cannot upgrade their financial situation quickly and
improve their ability to make payments to developers and take care of other
bottlenecks, installations will stall and so will the goal of reaching 100 GW