Andhra’s Order On Renewable Power Puts Half Of Sector’s Debt At Default Risk, Says Crisil

The Andhra Pradesh government’s move to bring down the purchasing cost of wind and solar power could stress 5.2 gigawatt of renewable energy projects with an estimated debt exposure of over Rs 21,000 crore, a Crisil report said on Tuesday.

The order, according to the rating agency, could aggravate the problem of delayed payments from distribution companies, putting nearly Rs 10,600 crore worth of debt at higher risk of default.

While nearly half of the capacity is at immediate risk of default, the other half may get a temporary breather as it falls under corporates that have strong financial flexibility, the report said.

The state government on July 1 directed a high-level negotiation committee to use current rates, rates prevalent at the time of commissioning of projects, and the current opportunity cost of other sources of power to benchmark and renegotiate agreements.

Around 5.2 GW projects out of 7.5 GW in Andhra Pradesh are supplying power to state distribution companies under long-term power purchase agreements at predetermined tariffs, Manish Gupta, senior director at Crisil, wrote in the report. “They now face renegotiation risk given that their tariffs are above the recent auction prices of below Rs 3 per unit for renewable projects and average power purchase cost of Rs 3.8 per unit in AP in fiscal 2019.”

This, according to the report, excludes inter-state transmission system projects of 2GW, where the exposure is to central counterparties—NTPC Ltd. and Solar Energy Corporation of India Ltd.—and are relatively safe as the payments to the developers are from the counterparties’ pooled cash flows.

A typical debt funding per MW of Rs 4 crore would put Rs 21,000 crore of debt at risk of default, the report said, adding that in the event of any adverse recommendation by the committee, generators may take the legal route to stall implementation. This will prolong resolution and result in further delays in payment to renewable projects, it said.

Discoms in the state are already facing a significant resource crunch with revenue gap—revenue generated less the operating expenses—widening in financial year 2018-19, the report said, adding that discoms have been delaying payments to generators by six to 12 months.