Payment risk from discoms has resurfaced for wind power projects, with four key states – Madhya Pradesh, Maharashtra, Rajasthan and Andhra Pradesh – that act as a counterparty to around 40% of the overall wind capacity toting up dues of ~Rs 5,450 crore¹ to 156 renewable projects as of January 2021. That’s an ~50% increase in thedues on-year².

Wind power projects, constituting nearly three-fourth of the total private renewable (wind and solar) capacity of these four states, have borne a larger share of the payment delays. The reason being, bulk of these are old projects, with high tariffs of over Rs 4.5 per unit, handed out under the earlier FIT³ regime. These tariffs are higher than the average power purchase prices of these states.

Says Manish Gupta, Senior Director, Crisil Ratings “For wind power projects rated by Crisil, the aggregate receivables period from these state discoms has increased to ~9 months from the invoice date, compared with 3-5 months on average at March 2020. For projects in Andhra Pradesh, it has stretched to as much as 18-19 months⁴.”

These payment delays are due to persisting weak financial health of discoms, which deteriorated in 2020 due to lower collections from customers amid the pandemic. Although collections have recovered from the lows of the first quarter of the current fiscal, these remain below the pre-pandemic levels.

So far, wind power developers have been able to manage cash-flow pressures on servicing with the help of the Reserve Bank of India-announced moratorium on debt servicing and/ or surplus liquidity from the previous fiscal⁵. However, sustained delay of one more quarter could test the liquidity buffers – typically of 6-9 months in these projects, making them vulnerable to delays.

This could put nearly Rs 30,000 crore of debt in 9.5 GW of wind power projects at risk of delays. The remaining 6.5 GW of wind power projects are present in large groups and hence have greater flexibilities to manage delays, given their balance sheet strength and diversity from other counterparties in overall portfolio.

Says Ankit Hakhu, Director, Crisil Ratings, “Going forward, we expect the liquidity position of discoms to improve with collection efficiencies coming back to normal, along with the release of state government subsidies, which typically picks up pace towards the end of a fiscal. This should help restore the payment cycle to pre-pandemic levels.”

This unpredictability and volatility in payment pattern to renewable projects is a key risk for operational projects. To mitigate the issue, government has bid out larger proportion of capacities through central counterparties viz. National Thermal Power Corporation and Solar Energy Corporation of India which have maintained stable payment track record to developers despite variability in payments from underlying discoms. As proportion of these central counterparties increases in overall installed capacity base, the risk of payment delays in the sector is likely to decline.

¹ PRAAPTI portal
² Part of the increase in dues is also because of a 5% increase in the number of projects during the year
³ Feed-in tariffs (FIT) were introduced in 2003 to increase adoption of renewable energy and to provide economic development benefits
⁴ Receivable period for Andhra Pradesh is higher at 18-19 months as a result of payments being made at a partial tariff of Rs 2.44 per unit by the discom, instead of the full contracted tariff, pending resolution of ongoing tariff renegotiation under the PPAs signed with the discom
⁵ Which typically gets dividend out or upstreamed once a year after preparation of annual reports. Lenders did not release such payments for the period ending March 2021 for most of the borrowers, considering the liquidity issues arising out of stretch in receivable period