VIJAYAWADA: Even as the YSRC government is going full throttle to renegotiate and review solar and wind Power Purchase Agreements (PPAs), India Ratings and Research (Ind-Ra), a credit rating agency, is of the view that the State government’s decision has the potential to “impair the cash flow of projects and may impact investor sentiments in the sector”. It also called the government’s decision radical, which will have far-reaching implications on not just the State’s renewable power sector, but that of the entire country.
“Ind-Ra believes the recent constitution of High-Level Negotiation Committee (HLNC) by Government of Andhra Pradesh to review and renegotiate the signed power purchase agreements (PPAs) with wind and solar power developers has the potential to impair the cash flows of projects and may impact investor sentiments in the sector.
State discoms have accumulated payables of over eight months in Ind-Ra’s portfolio and if continued to be unpaid, the tariff renegotiation process will open an avenue for further delay in the payments until the renegotiations conclude,” the firm, which has a portfolio of solar and wind projects selling 474 MW power to Andhra Pradesh discoms, said in a press statement on Thursday.
It further considered PPA renegotiation or cancellation to be an event risk and a deviation from normal business proceedings as these are not embedded in the contract. “Given the already weak funding atmosphere for infrastructure assets, any misstep, such as renegotiation of contracts not only creates anxious times for the sector but also magnifies the risk a project could undergo during its PPA tenure. Notwithstanding the outcome of the committee decision, reopening of PPAs will dent investor sentiments. Additionally, banks will be forced to recognise these assets as non-performing if payments are stopped, thereby creating further stress for the lending sector,” it said.
Observing that the power purchase tariffs were approved by the AP Electricity Regulation Commission (APERC), Ind-Ra said that any cancellation or renegotiation, if finalised by discoms along with the State government, may be legally challenged by the affected stakeholders. “Given the Central government’s ambitious target of installing 175 GW of renewable energy capacity before FY22, these radical moves by State governments are sending confusing signals to the market. The renegotiation risk, if it becomes rampant across States, could pose a risk to generators, paving the way for the conversion of a healthy asset to non-performing asset,” it noted.