State discoms owe nearly Rs 10,000 crore to producers
Union minister of power and new & renewable energy RK Singh told Hindustan Times that the Centre will be writing to the states, whose pending dues to producers of wind and solar energy are very high, to expedite the payments.Updated: Sep 01, 2019 06:06 IST
State-run power distribution companies (discoms) owe Rs 9,954.3 crore to renewable energy producers, with the highest dues pending in southern states like Andhra Pradesh, Tamil Nadu and Telangana, according to Central Electricity Authority of India (CEA) data until August 20.
Union minister of power and new & renewable energy RK Singh told Hindustan Times that the Centre will be writing to the states, whose pending dues to producers of wind and solar energy are very high, to expedite the payments.
“To address the issue of payment delays, we are strictly implementing the relevant provisions of law wherein Discoms have to mandatorily provide a letter of credit to purchase power. This leaves us with legacy issues only. For that, we are willing to provide loans through PFC, REC and IREDA to state governments provided they give us a state guarantee,” Singh said.
PFC is short for Power Finance Corporation, REC for Rrural Electrification Corporation and IREDA for Indian Renewable Energy Development Agency.
Power producers in Andhra Pradesh, which are owed Rs 2,111.47 crore by Discoms, are already badly hit. The YSR Congress Party government of chief minister YS Jagan Mohan Reddy, which came to power in assembly elections in the summer, has decided to revise power purchase agreements (PPAs) signed by its predecessor with wind and solar energy companies generating 7 gigawatts (GW).
The move, which has shaken foreign investors and raised questions about the sanctity of PPAs, has prompted the Centre to step in and ask the state government to reconsider the decision.
India has set itself the task of adding 175 GW of renewable energy capacity by 2022 as it seeks to lower its dependence on fossil fuels and cut greenhouse gas emissions. Of the target, 100 GW is to come from solar projects. It will comprise 60 GW from ground-mounted, grid-connected projects, and 40GW from solar rooftop panes. Wind power projects will contribute 60GW.
Andhra Pradesh’s decision to renegotiate tariffs with all renewable energy producers has stalled major projects, led to weaker cash flows and unpaid dues to developers.
Experts warn that this could lead to another wave of non-performing assets (NPAs) at banks.
“We believe that the actual number (amount owed) is likely to be much higher as CEA is still working through the data compilation exercise. For the developers, this is a no-win scenario as many Discoms are in no position to pay and are increasingly looking to curtail renewable power. The risk of defaults on bank loans is definitely increasing in this scenario,” Vinay Rustagi, managing director at renewable energy consultancy Bridge to India Energy Private Limited, said.
A mismatch between demand and supply has resulted in stressed power assets. According to a report by the 37th Standing Committee on Energy, 34 power plants have turned into NPAs amounting to about Rs 1.4 lakh crore.
“All Discoms need to pay in time as this payment delay is affecting the viability of projects. The issue of late payment is also going to affect repayment to banks and may affect the participation of developers in future bids,” ministry of new and renewable secretary Anand Kumar said.
Hindustan Times on Monday reported the Centre had formed a high-level group tasked with making recommendations for changing the structure and system of power purchase and sale, including reforms needed in PPAs.
Power Discoms have typically entered into long-term power purchase agreements with the generating companies for supply of electricity wherein tariffs are determined by the regulatory commissions.