Citibank fears that there could be “a wave of bankruptcies” of wind and solar projects in about five years, consequent upon the low prices at which the energy companies will sell electricity.

Speaking at the RE-INVEST Conference-cum-expo, an event of the renewable energy industry organised here by the government of India, Michael Eckhart, Managing Director and Head - Environment Finance, Corporate and Investment Banking division of Citi, suggested that bidders quote two numbers — the tariff at which they would sell electricity and their ‘debt service coverage ratio’.

This would enable the tenderer to pick the bid that not only offers the lowest tariff, but also has the ability to repay its loans from the project earnings.

Eckhart said that otherwise there could be a situation of several companies bidding too aggressively and then going bankrupt.

This warning and suggestion comes in the context of very low prices quoted by energy companies in order to win wind and solar projects. Tariffs have gone down to as low as ₹2.44 a kWhr.

Payment guarantee mechanism

Eckhart, who has seen the Indian power sector from close quarters for decades, also called for the setting up of a payment guarantee mechanism, to give comfort to banks that the guarantor would pay the bank's loans in case the borrower defaulted.

Later, in a chat with journalists, answering a question on the cap (of ₹2.50 a kWhr) fixed by the Ministry of New and Renewable Energy for solar auctions conducted by the government company, SECI, Eckhart said while he wouldn’t want to “lecture India” on its policies, he wouldn’t finance any project if he considered the tariff to be too low.

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