Renewable energy projects bear the brunt of discoms' financial woes

The overdues of power distribution companies (discoms) towards generating companies (gencos) is on the rise again. However, this time, it is the renewable energy (RE) projects that are bearing the brunt. 

Despite an incentive announced last year to assist discoms clear their dues, renewable developers have benefited the least.

RE developers are fighting legal battles with several states over non-payment of dues, and in some cases, renegotiating tariffs.

The dues of RE power generators have increased by close to 40 per cent since January, the highest among all categories of gencos.

The dues of central government gencos have fallen by 50 per cent during the same period, while for private thermal gencos, it increased 34 per cent.

As on December 15, the total dues of discoms towards gencos stood at Rs 1.33 trillion (including disputed amount). Of this, the highest share is of thermal independent power producers (IPPs) at Rs 75,076 crore (including disputed amount), followed by central gencos at Rs 32,000 crore. 

The highest defaulting states are some of the largest electricity consumers, such as Uttar Pradesh, Rajasthan, Maharashtra, Tamil Nadu and Andhra Pradesh.

While the disputed amount of dues for renewable energy companies is not available at the PRAAPTI portal (tracks payments of discoms), their actual dues are still significantly high at Rs 20,786 crore. 

There are cases going on in several states – Madhya Pradesh, Andhra Pradesh, Tamil Nadu and Telangana over delayed or non-payment of dues to renewable energy projects, said industry sources.

Aditya K Singh, associate partner, Link Legal, said one of the major reasons behind the problem of overdues is vague orders of electricity commissions. “Reading orders of some of the state electricity regulatory commissions will reflect that there are no specific directions on payment and they also do not contain a timeline for payment. Barring a few, no commission takes non-compliance of its payment orders seriously,” said Singh.

He said, in some cases, a few state commissions have even told project developers to terminate power purchase agreements (PPAs) in case of payment default, making matters worse.

An industry executive said the poor financial state of discoms is preventing them from signing more PPAs with renewable projects and also impacting payments. Punjab has gone a step further to renegotiate PPAs, including that of renewable energy projects, wherein it wants to revise the tariff downwards.

On Tuesday, responding to a question on dues of discoms, R K Singh, Union minister for power, new and renewable energy, said it is a matter of concern that dues of renewable energy projects have inflated so much. 

“This will impact investment in green energy. We are taking stringent steps to compel discoms to pay bills on time,” Singh said.

The minister also announced that the Centre is working on a set of draft rules. These would entail that discoms, which default on payment to gencos, will not be allowed to purchase electricity from alternative sources.

In June 2020, the dues of discoms touched a record high of Rs 1.3 trillion. During the same month, Union finance minister Nirmala Sitharaman announced a special liquidity infusion scheme for the ailing power distribution sector. The Rs 90,000-crore loan scheme was for discoms to clear their dues to power gencos.

However, the scheme had limited impact. After reducing minimally in March 2021, the dues started rising again from June onwards as demand for power increased during the summer months. 

While the scheme ensured timely payment to central government gencos, private gencos or IPPs continued to grapple with delayed payments.

The financial loss of discoms has increased despite a reform scheme UDAY running during the past five years.