Cash-crunched discoms hinder growth of renewable energy projects

Said banks charge high interest due to projects built in high-risk states known for payment issues

Distribution companies' (Discoms') payment delays continue to pose a challenge for the growing renewable energy sector in India as it tries to achieve 175 gigawatts (Gw) of installations by 2022, said Mercom India in its latest report. The tariff in both solar and wind power projects fell to a historic low recently. 

The recent Rewa Solar Park auction recorded the lowest solar tariff in the country — Rs 3.30 ($0.494)/kWh (levelized tariff over 25 years). 

Whereas, in its first project bidding held for wind energy sector, the lowest tariff received was Rs 3.46 per unit for a 1,000 megawatt (Mw) project.

“With these extremely low tariffs, having problems in developers are looking at best-case scenarios with margins for error nearly non-existent. Payment delays are adding to project costs as banks charge higher interest rates due to projects being built in high-risk states known for payment issues, obstructing investment into the sector,” said Mercom in its report.

Maharashtra State Electricity DistributionCompany Limited (MSEDCL) was not buying power from wind power generators for the past three years. Similarly, Andhra Pradesh, Telangana and having problems with paying on time. Mercom previously reported that Tamil Nadu, Rajasthan and Maharashtra, have a track record of payment delays and curtailment of renewable energy. 

“Tariffs are falling at a record pace in solar due to a rapid decline in component costs, which is a welcome development for states which will see their power purchase costs decline. However, further drops in tariffs are in the hands of the government, which can reduce risks by removing hurdles like payment delays, transmission issues and curtailment, allof which are interlinked. By removing these risks, borrowing becomes cheaper for developers,” said Raj Prabhu, chief executive officer and co-founder of Mercom Capital Group.