Payment Risk Resurfaces Through Discoms For Wind Projects

Payment risks have resurfaced for discoms through wind projects with four key states - Madhya Pradesh, Maharashtra, Rajasthan and Andhra Pradesh - that act as a counterparty to around 40% of the overall wind capacity toting up dues of Rs 5,450 crore to 156 renewable projects as of January 2021, CRISIL has stated.

Wind power projects, constituting nearly three-fourth of the total private renewable (wind and solar) capacity of these four states, have borne a larger share of the payment delays. The reason being, bulk of these are old projects, with high tariffs of over Rs 4.5 per unit, handed out under the earlier FIT3 regime. These tariffs are higher than the average power purchase prices of these states.

Says Manish Gupta, Senior Director, CRISIL Ratings "For wind power projects rated by CRISIL, the aggregate receivables period from these state discoms has increased to 9 months from the invoice date, compared with 3-5 months on average at March 2020. For projects in Andhra Pradesh, it has stretched to as much as 18-19 months."

These payment delays are due to persisting weak financial health of discoms, which deteriorated in 2020 due to lower collections from customers amid the pandemic. Although collections have recovered from the lows of the first quarter of the current fiscal, these remain below the pre-pandemic levels.
Says Ankit Hakhu, Director, CRISIL Ratings, "Going forward, we expect the liquidity position of discoms to improve with collection efficiencies coming back to normal, along with the release of state government subsidies, which typically picks up pace towards the end of a fiscal. This should help restore the payment cycle to pre-pandemic levels."