Leading renewable energy (RE) companies are set to see their receivables reduce a fifth from ~180 days a year ago to ~140 days as of March 2023, a level last visible pre-covid.
Two-thirds of the improvement will be because of increasing central counterparty offtake, and the rest due to state discoms implementing the Late Payment Surcharge (LPS) scheme1 (see chart in annexure).
The incremental cash flow will allow RE companies to build capacity for growth and reduce leverage.
An assessment of 10 leading RE companies in the CRISIL Ratings portfolio, which are expected to build 50-55% of the renewable energy capacity in India in the next 2-3 fiscals, indicates as much.
Payment cycles had stretched in the past two fiscals because state discoms such as Madhya Pradesh, Maharashtra, Telangana, and Andhra Pradesh (accounting for ~23% of the overall capacity exposure) held back payments to RE developers following liquidity crunch or contractual disagreements. This increased the overall cycle for assessed companies by over 10% to ~180 days as of March 2022 (compared with the March 2019 level).
Says Manish Gupta, Senior Director, CRISIL Ratings, “Receivable levels could have deteriorated more but for the increase in the proportion of central counterparties (Solar Energy Corporation of India and National Thermal Power Corporation Ltd) to ~40% of operational portfolio in March 2022 from ~20% in March 2019. This fiscal, we expect the share of central counterparties in operating RE capacities to rise to ~50%, which will improve receivables to ~155 days as of March 2023, keeping other things constant.”
Central counterparties are expected to maintain their payment track record, given the benefit of diversity, payment security funds, and higher bargaining power, because of their scale and flexibilities such as being beneficiary in tripartite agreement between state government, central government, and the Reserve Bank of India.
Additionally, says Ankit Hakhu, Director, CRISIL Ratings, “Some states2 have subscribed to the government’s LPS scheme under which they are to clear past dues of power generating companies and regularise their fresh dues. Under the scheme, Power Finance Corporation/ REC Ltd will provide loans to state discoms to help pay off dues of gencos (over 1-4 years). Andhra Pradesh3, Madhya Pradesh, Karnataka and Maharashtra, which have subscribed to this scheme, may potentially clear dues worth ~Rs 2,000 crore in fiscal 2023, which will help improve the receivable level of key RE companies by another 15 days.”
Confidence remains high on regularisation of state discom dues given the penal provisions in the LPS scheme, such as cessation of short-term power access, curtailment on medium- and long-term power access, and additional liabilities for delay in payments, or if generators dip into payment security funds.
Moreover, some of the assessed companies have started receiving payments and communication on scheme implementation from select state discoms.
The calculations assume commissioning of ~7 gigawatt by these companies with central counterparties during fiscal 2023. Delay in implementation of these capacities because of rise in module costs could affect our estimates.
1 Refer to CRISIL press release, ‘New instalment scheme can be a boon for the power sector despite higher discom payout’, dated June 21, 2022
2 A Ministry of Power release dated August 4, 2022, indicates that Rajasthan, Jharkhand, Tamil Nadu, Maharashtra, Chhattisgarh, Madhya Pradesh and Uttar Pradesh have subscribed to the liquidation of payment scheme
3 in line with High Court order in March 2022
Mumbai
