Tamil Nadu has become the 21st state in India to join the Ujwal DISCOM Assurance Yojana (UDAY), a government program designed to facilitate financial turnaround of DISCOMs (distribution company). Tamil Nadu carries a debt of around ₹500 billion (~$7.4 billion), a large chunk of the total India DISCOM debt of ₹4,000 billion (~$58.9 billion).

A memorandum of understanding (MoU) was signed on January 9, 2017 between the Union Ministry of Power, the government of Tamil Nadu and its DISCOM, the Tamil Nadu Generation and Distribution and Corporation Limited (TANGEDCO). By becoming a part of UDAY, the state is expected to save around ₹110 billion (~$1.62 billion) by FY2019. The UDAY program is designed to help TANGEDCO save on interest costs, reduce aggregate technical and commercial (AT&C) and transmission losses, and initiate energy efficiency measures. The state also signed a 24X7 Power for All document. After Tamil Nadu, 92 percent of India’s DISCOM debt has now come under the UDAY umbrella.

“Tamil Nadu is possibly the most important state to join UDAY due to its high debt levels, its inability to pay solar and wind power producers on time and its curtailment of solar and wind power to avoid paying for generated power,” said Raj Prabhu, CEO of Mercom Capital Group.

According to Mercom’s India Solar Project Tracker, the state currently is the top solar power installer but it’s recent auction received tepid response due to payment and curtailment issues.

As a part of the process, the state government will take over 75 percent of TANGEDCO’s debt, which amounts to ₹304.2 billion (~$4.48 billion). The balance will be re-priced or issued as DISCOM bonds, with a guarantee by the state government, at coupon rates around 3-4 percent less than the average existing interest rate. Because of the reduction of interest rates on the balance of debt, the state will save approximately ₹9.5 billion (~$140 million) in annual interest.

The state is also now obligated to implement energy efficiency measures, such as usage of energy-efficient LED bulbs, agricultural pumps, fans & air-conditioners and efficient industrial equipment, through a perform, achieve and trade (PAT) program to help reduce peak loads, and flatten load curves, resulting in reduced energy consumption. Under ideal conditions, Tamil Nadu is expected to save about ₹23.04 billion (~$339.4 million) through energy efficiency.

The state is also expected to benefit from preferred pricing of coal from the National Thermal Power Corporation (NTPC) or other Central Power Sector Units (CPSUs). Tamil Nadu is expected to enjoy financial benefits of ₹43.2 billion (~$636.4 million) from coal reforms, and another ₹600 million (~$8.84 million) in interest savings for the next three years.