Renewable Investment Worth 48,000 crore Are At RISK

Five sectors namely steel, power, telecom, infrastructure and textile account for over 60% of the total stressed assets on the books of banks in India at present. Out of which power sector exposure is over Rs 2.3 lakh crore which is 35% of bank’s stress level.

According to a Crisil report, due to aggressive bidding for renewable energy capacities distribution companies (discoms) are calling for renegotiation of the power purchase agreements (PPAs) that they signed in recent years at higher tariffs. In all, 7 GW of solar projects which were awarded at tariffs of Rs 5-8/unit over fiscal 2015-2017 are at risk. PPAs or letters of intent for these capacities, in Uttar Pradesh, Andhra Pradesh, Karnataka, Telangana and Punjab, were inked at tariffs 12-66% higher than the APPC of these states.

Even wind-based capacity additions are likely to fall to 1.5-2 GW in fiscal 2018 compared with 5.5 GW in fiscal 2017. Growth in solar capacity additions, too, is expected to be below potential. All this is leading to downward revision of PPA tariffs of wind and solar energy projects already constructed.

Banks, too have become more cautious in lending to renewable energy projects as discoms which are considered relatively strong financially, are renegotiating PPA tariffs, without any legal grounds or force majeure conditions.

Taken together, Crisil Research believes, investments worth Rs 48,000 crore are currently at risk. So it is in the of the renewable energy sector that the rates discovered through competitive bidding in a PPA already executed, be honored, given that it is a legally binding contract between two parties. Further, future PPA contracts need to be watertight, with specific clauses to safeguard developers from renegotiation.