The renegotiation of tariffs under renewable power purchase agreements (PPAs) by quoting high tariffs is not an apparent option available with state discoms, says India Ratings and Research (Ind-Ra). Reportedly, state utilities have evinced interest in revisiting signed PPAs to capitalise on falling solar and wind tariffs. This has affected investor sentiments towards the fledgling renewable sector. Moreover, erratic counterparty behaviour has continued to reduce project cash in some states.
Ind-Ra considers PPA renegotiation or cancellation an event risk and a deviation from the normal course of business. Therefore, current ratings of entities do not factor in this risk.
Although solar cost per unit is higher than the average revenue requirement, wind cost procurement per unit is lower than the average revenue requirement, leading to an overall cash accumulation for discoms across the five sample states, except Telangana. With solar power tariffs rapidly declining and power procurement quantity from the solar space increasing in the next two years, the impact of earlier high solar tariffs on the financials of discoms could be completely eliminated. Read More…
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