January 2020

The year 2020 started on a somewhat positive note for the renewable energy sector. Ending months of uncertainty, the Andhra Pradesh government has directed the state discoms to start clearing the arrears owed to renewable energy companies, providing partial relief to about 5,000 MW of projects.

The projects have been battling  commercial risks since early 2019, when the Andhra Pradesh government decided to set up a committee to renegotiate contracts and the discoms stopped paying their dues. But following the Andhra Pradesh High Court’s recent order directing the state discoms to clear their payment dues, these utilities are believed to have released about Rs 25 billion in the first week of January 2020 to settle pending payments for the period September 2018 to June 2019. This translates into around 40 per cent of the total amount that the state owes to power generators. The residual dues are also expected to get paid as the state government is negotiating with central agencies for soft working capital loans.

Throughout the year, investments across the sector had come to a halt. One, because Andhra Pradesh’s move had sent negative signals to international investors about the sanctity of contracts in the country. It also brought the centre and the state into direct confrontation, while drawing criticism from the governments of France, Canada and Japan. And two, because land and transmission constraints stalled project development across states, further dampening the investor sentiment.

On the latter issue, involving the central PSUs for acquiring land and setting up transmission infrastructure under a new plug-and-play model devised by the Ministry of New and Renewable Energy has helped instil confidence in the sector. But regarding the issue of PPA sanctity, the Andhra Pradesh case is not fully resolved as the court is yet to decide if the tariffs can be negotiated. As of now, the dues are being cleared at the lowest rate discovered so far in any auction in the country – Rs 2.43 per unit for wind power and Rs 2.44 per unit for solar power. Moreover, the state continues to curtail the injection of renewable energy from some projects to the grid. If the government wants to stop this issue from spilling over to other states in 2020, it would have to keep a close check on this matter and deal with any adverse impact well in time.

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