Contrary to the belief that signing power purchase agreements (PPAs) with reliable counterparts such as Solar Energy Corporation of India (SECI) and National Thermal Power Corporation of India (NTPC) is better than having PPAs with discoms directly, this might not be the case, say sector analysts.
After studying the fine print in several PPAs signed between renewable power developers and NTPC and SECI, India Ratings found that while PPAs underscore that payment obligations are direct obligations, all other risks and obligations would be on a pass-through basis.
The emphasis on SECI and NTPC being only intermediaries and linking the PPAs signed with a developer to a power sale agreement (PSA) signed with particular distribution company (whose name is disclosed in PPA itself) indicates a trend of limiting the liabilities on SECI and NTPC, it noted. In fact, more recent tariffs signed in 2019 by both firms go further in limiting their own exposure in case of a default by discoms.
Both SECI and NTPC have assumed direct obligations for tariff payment under their recent PPAs. This emphasis on only assuming payment obligations was absent in earlier PPAs and is a more recent trend, Ind-Ra said.
The report notes that SECI has the highest tender pipeline (19GW) and the financing of future projects depends on the features of SECI PPA. The intricacies of obligations under SECI and NTPC PPAs indicate significant dependence on back-to-back performance by buying discoms. The latest NTPC PPA has also tariff adoption by the relevant State Electricity Regulatory Commission for the discom that has signed back-to-back PSA as a condition precedent. In earlier PPAs, such a clause was absent.