Recent commencement of Change in Law payments by state power distribution companies (Discoms) and the Solar Energy Corporation of India (SECI) for Goods and Services Tax (GST) to solar power projects, comes as a shot in the arm for the sector.
Together with safeguard duty (SGD) reimbursements, which also qualify under ‘Change in Law’, the payments will lead to Rs 4,000 crore cash inflow for the sector.
This can restore project returns by as much as 220 basis points (bps) and is positive for credit quality, according to CRISIL.
Now, counter-parties including SECI and Discoms such as Maharashtra State Electricity Distribution Company Ltd (MSEDCL) have started making payments towards GST reimbursements for their respective projects.
To ensure returns don’t diminish because of delays in payment, the reimbursement is in the form of a 13-year annuity and also factors in a carrying cost of 10.4 percent on a retrospective basis, in line with the CERC’s latest tariff orders.
As per the CRISIL note, the commencement of GST reimbursement paves the way for similar disbursements towards SGD (75 percent of overall Change in Law payouts) where the payment mechanism is also established on similar lines and is awaiting submission and verification of cost documents by developers.
This strengthens the sectors’ outlook as, apart from claw-back of returns, it yet again demonstrates upholding contractual terms in line with the power purchase agreement (PPA).
Reference-Economic Times, Financial Express, Business Standard