July 2020

A number of recent developments have once again brought into focus the financial health of the discoms and the consequences for the country’s renewable energy ambitions. Several power utilities have been reporting an increasing revenue deficit despite continuous efforts by the government to bail out the discoms through schemes such as UDAY.

Power demand in the current fiscal has declined and is projected to be 5-8 per cent lower vis-à-vis the previous fiscal due to the steep fall in demand from the commercial and industrial segment on the back of the Covid-19-induced nationwide lockdown. The fall in demand is likely to result in a 13.1 per cent year-on-year decline in discom revenues to Rs 6.8 trillion in 2020-21.

Outstanding payments to IPPs are piling up, especially in southern states such as Andhra Pradesh and Tamil Nadu. Reportedly, as of March 2020, Andhra Pradesh’s discoms owed renewable energy generators Rs 68.37 billion.

The impact of the deteriorating financial health of discoms is manifesting in a number of ways, ranging from delayed payments to renewable generators to curtailment of renewable power. Discoms are increasingly reducing power offtake from generators, including from renewable energy projects that have near zero marginal costs and from which they are contractually bound to procure. Some of the state discoms are also engaged in renegotiating legally contracted tariffs. Andhra Pradesh has been a classic example, and Uttar Pradesh is another.

Now Haryana seems to be heading in a similar direction. Many developers have approached government authorities regarding the state discoms denying the signing of connection agreements and granting of long-term open access to solar power parks and projects allocated by Haryana VidyutPrasaran Nigam Limited, the state entity responsible for power transmission. Andhra Pradesh’s discoms have also claimed that the high procurement costs of renewable power are a threat to their survival given their already precarious financials.

This situation is increasing the risk for renewable energy generators and their financial backers. Being the major offtakers of renewable power, the discoms’ woes cannot be overlooked by policymakers if the country’s renewable energy targets are to be achieved. And this calls for not just a financial bailout, an approach that has repeatedly failed in the past, but for a systemic overhaul that can deal with the current lack of centre-state coordination and cooperation, the use of discoms as a vehicle for unfunded political subsidies, and a cost plus year-to-year tariff-setting process.

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