Payment delays are becoming a problem again for solar and wind project developers in India especially in Andhra Pradesh, Tamil Nadu, and Telangana. Some instances in Madhya Pradesh and a DISCOM in Karnataka are also being blamed for long payment delays to developers.
Payment delays were a persistent problem a couple of years ago, and Mercom reported on this topic in March of 2017. The situation improved briefly but has now deteriorated again.
States with payment delay problems – Andhra Pradesh, Tamil Nadu, and Telangana are major solar markets which have about 9 GW of large-scale operating solar projects between them according to Mercom’s 2018 Q4 & Annual India Solar Market Update.
Solar and wind tariffs are well below the ₹3/kWh mark with the lowest solar tariff in India reaching ₹2.44 (~$0.038)/kWh and wind tariffs touching the lowest-ever mark of ₹2.43 (~$0.037)/kWh. Government agencies are benefitting from low tariffs and procuring power at record low prices. However, for developers, these extremely low tariffs mean no margin for error.
In this scenario, payment delays are a huge risk for developers. The chance of default in the case of a long payment delay increases dramatically when a developer is unable to service the bank interest, and in the long-term, this could lead to non-performing assets.
A top executive at one of the major private renewable energy conglomerates said, “All of us, both big and small players, are facing payment delay problems and this issue is escalating day by day. Andhra Pradesh, Tamil Nadu, and Telangana are the main culprits. In Tamil Nadu, there has been a delay of about more than a year. In Telangana, the delay has been about ten months, and in Andhra Pradesh, the delay is about seven to eight months. These delays are for payments of both solar and wind power projects.”
Mercom reported on curtailment issues in Karnataka, Andhra Pradesh and, Tamil Nadu back in November.
A mid-sized developer told Mercom last month that they haven’t received payments for their Madhya Pradesh projects over the previous 4 to 6 months.
Even the country’s largest power generator, the National Thermal Power Corporation (NTPC) has been affected by this issue. Mercom recently reported that DISCOMs in Andhra Pradesh, Telangana, and Karnataka owe NTPC ₹18.84 billion (~$262.6 million) in dues for solar power supplied by projects under the National Solar Mission.
Talking to Mercom, an NTPC official said, “Payment delays are a big setback as capital gets stuck and it affects the workings of our companies. If it is for one or two months, it is understandable, but here the delays are for months upon months, and one has to approach higher authorities and do a lot of arm twisting to make these DISCOMs pay. We supply thermal power along with renewable energy, so we (at NTPC) have a better leverage point when it comes to making DISCOMs clear dues, but for other firms that are only involved in the renewable energy segment it is a tough ask, as they are dependent on the whims of DISCOMs and even the process of relief through CERC or SERC is time-consuming, putting projects and profits in danger.”
The Ujwal DISCOM Assurance Yojana (UDAY) program was supposed to help some DISCOMs stuck in a debt-rut. However, looking at the non-payment of dues, it does not look like UDAY has helped the financial situation of DISCOMs. When asked about the reason behind payment delays in the light of implementation of the UDAY program, the top executive at a the major private renewable energy conglomerates said, “UDAY has been a failure as plans were not put into operation in time; the regulatory body did not implement tariff changes on time, and now this has led to the current backlog of dues by DISCOMs.”
When contacted over the issue, Manoj Gupta of Fortum said, “Our company doesn’t have any power purchase agreements with state-owned DISCOMs, so we aren’t facing any payment delays. But the issue exists in the sector and is a huge bother for generators that have entered into PPAs with state-owned DISCOMs.”
When contacted to shed some light on the issue, an executive at a large solar firm said, “The largest project developers in the country – including NTPC – have been facing payment delays for over a year now. They have the wherewithal to survive and keep on executing new projects, but the smaller fish will die. They will have to sell their projects in order to survive and to execute new projects as banks charge higher interest rates in India due to this being a high-risk sector known for payment issues amongst others.”
A top executive at another large private green company in India said, “In Tamil Nadu, the payment has been pending since July 2018. Karnataka is a bit irregular in payments at times; the only exception being HESCOM that is a known defaulter. On top of all this, curtailment is not helping. In Tamil Nadu, we are facing curtailment. In Karnataka too, there was some curtailment in the past.”
Recently, the Ministry of Power constituted a new committee to study and submit recommendations into the issue of delayed payments by DISCOMs to power generating companies and independent power producers. The final results are yet to be published.
Addressing the financial woes and payment issues in Andhra Pradesh and Telangana, India Ratings and Research in its note said,“ The increasing dependence on the subsidy has rendered Andhra Pradesh DISCOMs vulnerable to the finances of the state. A significant part of the subsidy for FY19 was supposed to be raised through bonds guaranteed by the government of Andhra Pradesh and was raised on April 23, 2019. It is likely that a large quantum of pending dues to generation companies, including renewable projects, will be cleared from the proceeds of these bonds. However, the lack of clarity about timely funding of the subsidy continues to pose uncertainty over the cash flow position of the DISCOMs in Andhra Pradesh, as well as of projects that sell power to the DISCOMs in the state.”
If the payment issue continues or gets worse the ability of solar developers to bid for new projects will decrease. Already many developers are already reluctant to bid for projects in auctions that have aggressive tariff caps where the margins are very tight. Add payment uncertainty to it and projects become a very risky bet.
“There are already a plethora of challenges that face developers like import duties, GST, land and transmission issues in the country. Long payment delays on top of this are devastating to many companies that have taken risks to invest and generate clean power in India, especially smaller developers. A payment guarantee mechanism for solar and wind developers is a must and cannot wait,” said Raj Prabhu, CEO of Mercom Capital Group. “Clean power generators should be encouraged and incentivized not pushed to financial distress.”