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 Climate Change

Energy
Published on: May 9, 2020, 12:13 p.m.
India's renewable energy players grapple with reality post COVID-19
  • File picture of a solar power plant in Telangana

By Business India Editorial

Industry body CII has called upon the government to create a special fund that would underwrite the timely payment of generation, transmission, and renewable companies’ dues for the next six months.

Renewable energy, a sunrise industry, has seen at least two ongoing deals reach conclusion last month. On 7 April South Africa's Total SA completed an investment of Rs3,707 crore in a 50:50 joint venture with the BSE-listed Adani Green Energy through a step-down subsidiary. Adani Green operates a 2,148 megawatt (MW) solar power portfolio spread across 11 Indian states. On 27 April, Shapoorji Pallonji Infra sold 317 MW of operational solar assets to investment firm KKR for Rs1,554 crore.

But industry players say that these negotiations were ongoing and from before Covid-19 and lockdown directions. India's daily power demand has since declined by 25-28 percent, driven by factory and office closures in the commercial and industrial sectors. A halt in economic activity has led to stalled payments by distribution companies, with some considering the 'force majeure' clause to tide over the crisis.

An estimated three gigawatt (GW) of wind and solar projects are facing payment delays and potential cost overruns due to disruptions in the supply chain as well as the workforce.

In its report titled "Sustaining India’s Power and Renewable Energy Sector in the Wake of COVID19", CII has recommended that instead of stopping payments to power producers, the distribution companies should raise working capital and pay the producers instead. "This is better than individual IPPs raising the same working capital," it adds.

Renewable energy generators were owed Rs10,000 crore from distribution companies pre-lockdown, and further payment delays are likely to result in a strain on cash flows from ongoing projects. About 20-25 per cent of debt owed by renewable energy projects also comes from overseas lenders, to whom the Reserve Bank of India's three-month moratorium does not apply.

Some of India's renewable power companies "are protected from force majeure clauses in their power purchase agreements since, as per the law of the land, renewable energy projects have a must run status," says Sumant Sinha, Chairman and Managing Director, ReNew Power.

But problems have extended to logistical issues and supply chain disruptions too, with projects importing their last shipments of equipment in end January due to shutdowns in China. While supplies are now ramping up there, domestic logistics continue to be disrupted. The lockdown has also affected operations of government offices, including state regulators and customs departments (where the material is stuck).

The government has so far offered the sector some relief. A Ministry of Power’s notification dated 6 April to distribution companies requires them to maintain payment terms of 45 days to generators. On 17 April, the Ministry of New and Renewable Energy allowed all renewable projects in the pipeline a blanket extension in the deadline for the period of lockdown plus additional 30 days for normalisation, for which they will not have to submit any evidence or proofs for examination.

But restarting the supply chain and mobilising manpower will be a time-consuming affair. "A blanket extension of six months for all under construction renewable energy projects will go a long way in protecting the industry from the adverse impact of this pandemic,“ adds Sinha.

The CII report had estimated that a lockdown until 3 May 2020 could result in total demand compression of approximately 33-36 billion units, implying a net revenue loss of Rs25,000-Rs30,000 crore at the distribution company level. This could further increase the liquidity crunch to approximately Rs45,000 -50,000 crore, taking into account expected delays in payments.

The lockdown has since been extended to 17 May in various parts of the country.

Only in January this year, President Ramnath Kovind had in an address to both houses of Parliament announced India's ambitious target of having 450 GW of renewable energy by 2030.

Till February 2020, a total of 86.75 GW renewable energy capacity has been installed which includes 34.40 GW from solar, 37.67 GW from wind, 10 GW from biomass, and 4.68 GW from small hydro-electric projects.


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