CRISIL: Resolve Discom Payment Uncertainty For RE Firms

• A CRISIL analysis says top 10 renewable energy companies in India are currently managing their finances in the face of payment delays from discoms with their diversified operations and financial flexibility
• Most payment delays are being faced by companies from discoms in the states of Andhra Pradesh and Telangana
• Slower pace of new capacity awards over last 18 months have also helped them save their cash reserves and focus on consolidating capacities
• CRISIL warns that if these payment delays continue these be detrimental for credit outlook of the renewable energy sector in the country and dampen investor sentiment as well

An analysis of 10 leading renewable energy companies in India that account for 32% of installed renewable capacity in the country by ratings agency CRISIL shows that  these companies are managing the stress arising from payment delays of Andhra Pradesh and Telangana electricity distribution companies (discoms) thanks to their diversified operations and financial flexibility.  However, the issue needs to be resolved soon. CRISIL warns that a prolonged delay in solving these issues could hurt the credit outlook of the sector and moderate investor sentiment.

CRISIL said that these companies, which were not identified,  have had their liquidity crunch intensified since Telangana discoms stretched their payments and contributed to cash-flow mismatches. At the same time, Andhra Pradesh discoms have been delaying payments for contracted renewable assets for around a year.

As of March 2019, aggregate cash flows from Andhra Pradesh and Telangana discoms to these 10 companies were 20% of aggregate revenues.

To save on their current cash reserves, these firms are maintaining unencumbered cash and unutilized working capital lines of around seven months of their overall debt servicing, over and above the one-two quarters of debt service reserves at the project level. Helping them in saving their money was the slower pace of new capacity awards in the past 18 months, points out CRISIL, which made them conserve cash and focus on consolidating capacities before embarking on next phase of growth.

"The liquidity and sponsor support is only an interim cushion to manage stress. Extended delays in resolving the payment uncertainty can weaken the credit outlook of the sector and moderate investor sentiment," explained Ankit Hakhu, CRISIL Rating Associate Director.

The Andhra Pradesh Electricity Regulatory Commission (APERC) has helped relieve stress of some of the solar companies with its approval of the tariffs discovered during auctions by NTPC and SECI for 1.7 GW capacity that was disputed by the state government (see India Planning 30 GW RE Plants Along Western Border).

Recently, the Ministry of New and Renewable Energy strongly refuted another CRISIL report that stated that India is likely to fall short of its 175 GW renewable energy target by 42% by the target year 2022 (see MNRE Hits Back; Says India Will Exceed 175 GW RE Goal).