IPPs dependent on 3rd-party off-take of renewable power at risk as Covid-19 clips disoms’ cash flows: ICRA

Our Bureau Hyderabad | Updated on June 18, 2020

The renewable energy IPPs (Independent Power Producers) supplying through open access to commercial and industrial consumers face payment risks as cash flows of discoms have been affected due to the Covid-19 lockdown.

States have amended policies over a period and have either completely withdrawn or reduced incentives given to open access consumers as tariff competitiveness of renewable energy both wind and solar has improved.

Third-party sale based projects face challenges due to much lower tenure (5-10 years) PPAs as compared with utility scale players’ 25-year PPAs.

Further, the open access charges applicable in case of third party sale of power have also shown an increasing trend across key States, highlighting the rising regulatory risk for such IPPs. Earlier, the state power policies were attractive for open access based renewable power projects as concessions were available from levy of cross-subsidy surcharge (CSS), transmission and wheeling charges as well as favourable banking facilities to promote the renewable sector.

Girishkumar Kadam, Sector Head & Vice-President, ICRA Ltd said, “The renewable IPPs based on third party/group captive off-take remain exposed to regulatory risk, which is set to augment even more, given the likelihood of an increase in open access charges due to an adverse impact of the lockdown/restrictions to control Covid-19 outbreak on the cash flows and revenue profile of the state-owned distribution utilities. Further, with the improved tariff competitiveness for wind and solar energy against the conventional power sources, the open access charges for renewable energy projects are likely to remain aligned as that for conventional power sources, going ahead.”

The State Electricity Regulatory Commission (SERC) in Maharashtra has recently approved the levy of additional surcharge on group captive projects, as per the order issued in April 2020. Group captive consumers were earlier exempt from such levy in Maharashtra. Risk of such levy by SERCs in other States cannot be ruled out for group captive IPPs.

The viability of power procured under the open access route in the renewable energy segment is a function of discount offered by the power producer as compared to the grid tariffs and applicable open access charges. The applicable open access charges are estimated to vary quite widely from ₹2.5 per unit to ₹5 per unit. The States under comparison include Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Rajasthan and Tamil Nadu.

Published on June 18, 2020

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