With many state discoms adopting measures such as grid curtailment and payment delays to compel renewable energy developers to offer discounts for the power purchase agreements (PPAs) signed in the recent years, investments to the tune of over Rs 48,000 crore are currently at risk, says Crisil Research.
According to the ratings agency the aggressive bidding for renewable energy (RE) capacities have started recoiling on the industry at large as discoms call for renegotiation of the PPAs they have signed in recent years at higher tariffs.
Some discoms have also adopted measures such as grid curtailment and payment delays to compel developers to offer discounts, it said.
Bid tariffs quoted were as low as Rs 2.44 per unit for solar power in May 2017, down 45 per cent compared with Rs 4.43 per unit in March 2016.
While for wind power, the quoted bid tariff of Rs 3.46 per unit in February 2017 was 17 per cent lower than the lowest feed in tariff of Rs 4.16 per unit in India.
"This has prompted many discoms to openly voice their reservations on honouring the PPA or Letter of intent (LoI) for nearly 3000 MW. As a result, investments worth Rs 48,000 crore are currently at risk," Crisil Research Senior Director Prasad Koparkar said.
The 3,000 MW of PPAs were signed in states like Andhra Pradesh (1,100 MW), Gujarat (250 MW), Karnataka (900 MW) and Tamil Nadu (500 MW) at feed-in tariffs or at much higher than the recent bid tariffs.
In all, 7,000 MW of solar projects tendered and awarded at tariffs of Rs 5-8 per unit over fiscal 2015-2017 could be at risk, it said.
Also PPAs or LoIs for these capacities, in Uttar Pradesh, Andhra Pradesh, Karnataka, Telangana and Punjab, were inked at tariffs 12-66 per cent higher than the APPC of these states.
Even in wind energy, 2,000-3,000 MW of projects which were allotted or had PPAs signed over Q3-Q4 fiscal 2017 at feed-in tariffs are at high risk of renegotiation.
The agency believes wind-based capacity additions are likely to fall to 1,500-2,000 MW in fiscal 2018 compared with 5,500 GW in fiscal 2017. Growth in solar capacity additions, too, is expected to be below the potential.
"If discoms have their way, downward revision of PPA tariffs would adversely impact the returns of wind and solar energy projects already constructed. A 10 paise per unit reduction in tariff impacts equity internal rate of return by 80-90 bps for wind power and by 150-160 bps for solar power," it said.
Concurrently, this could spark a spate of court cases and the essence of the National Solar Mission may be lost in delays, the report said.
"Banks, too, would be more cautious in lending to renewable energy projects, considering even discoms relatively strong financially are renegotiating PPA tariffs, without any legal grounds or force majeure conditions. It also casts doubt on enforceability of contracts," Crisil noted.