Forthcoming RE Investments to be Hit by Reconsideration of Signed PPAs in Andhra: ICRA

The continuing endeavors by the Andhra Pradesh government to reconsider present wind and solar power PPA’s without shared consent may unfavorably impact investor sentiment and future investments in the sector, ratings agency ICRA said.

“The unwillingness displayed by the state government of Andhra Pradesh to honor the PPAs may result in payment delays for wind and solar IPPs in the state in the near term,” believed Sabyasachi Majumdar, Group Head – Corporate Ratings at ICRA.

He further that the PPAs are contractual documents and individually amending them is possible to be subjected to legal challenges.

The state government has established a High-Level Negotiation Committee (HLNC) to review, negotiate and bring down the cost of wind and solar PPAs tied-up by the state discoms. The state government attributes the high cost PPAs to the large power purchase dues from the discoms to the power generators, and thus has recommended reviewing the agreements and to negotiate and bring down the prices.

The committee includes the Finance Minister, Energy Minister and other related officials. Its functions include revising the high cost wind and solar agreements, negotiating and taking down the prices of wind and solar power PPAs and making suitable commendations. The committee is to be directed by the lowest wind and solar power rates in the corresponding years, prevalent rates and opportunity cost of power purchase for the discoms.

The receivable position for wind and solar power IPPs in the state has deteriorated to around 8-10 months as of June 2019 against less than 4 months as on March 2018, revealing the IPPs in the state to higher credit risks.