Mumbai: Solar and wind energy projects in Andhra Pradesh will remain stressed despite an order from the Andhra Pradesh high court that the state distribution companies should pay an interim tariff of ₹2.44 per unit and ₹2.43 per unit to solar and wind energy developers, respectively. Credit ratings agency India Ratings said it is unlikely that renewable energy players, who supply to the state and are caught in the middle of forced tariff renegotiations, will get any respite through this interim tariff.
"The order to pay an interim tariff of ₹2.44/unit and ₹2.43/unit for solar and wind projects, respectively, will not be sufficient for the entire debt servicing for the capacity of 554MW in Ind-Ra’s state portfolio (with AP state discoms as direct counterparties)," the agency said.
“In the absence of internal liquidity generation for the following six months at least, all affected projects will have to necessarily lean on sponsor support or any balance liquidity available with the project (reserves, undrawn lines, cash balance etc.) for debt servicing till the projects start receiving full monthly tariffs as per power purchase agreements (PPA)," it added.
The high court order has given three broad directions – all the issues related to tariff are to be raised with Andhra Pradesh Electricity Regulatory Commission (APERC) and need to be resolved within six months; a directive has been issued that power curtailment cannot be imposed without following regulatory processes and giving required notice; payment of interim tariff at the rate of ₹2.44/unit and ₹2.43/unit will have to be made for solar and wind projects, respectively.
India Ratings also noted that the interim tariff judgment as per the order could set a dangerous precedent. “If other discoms (power distribution companies) follow a similar course of action, it will endanger foreign as well as domestic investments, leading to an increase in the share of non-performing assets."
An immediate resolution of the tariff matter seems to be waning and this may not be resolved for at least six more months, as per timeline stipulated in the order, necessitating the need for addition liquidity injection by sponsors into the project or additional working capital lines to fund burgeoning receivables, the agency said.
Besides this, state discoms have made payments only till July 2018. “Given the seriousness of the situation, lenders might become wary of increasing their exposure to these projects, forcing generators to depend on sponsors or group companies for their funding requirements. Sponsors that are already low on liquidity and have significantly large exposure to AP state discoms might find it increasingly difficult to keep supporting their projects," India Ratings added.