India

India

Andhra Pradesh putting projects at risk of default

The Indian state of Andhra Pradesh is putting INR 210 billion ($3 billion) of project debt at risk after it threatened to renegotiate its power purchase agreements with renewable energy generators.

Andhra Pradesh is knocking investor confidence by looking to alter tariff rates (pic: Orange Renewables)
Andhra Pradesh is knocking investor confidence by looking to alter tariff rates (pic: Orange Renewables)

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The state's government is disillusioned with the high rates it is paying existing generators under feed-in tariffs, after federal power auctions saw power prices fall rapidly in India for new projects.

As a result, the state’s distribution companies are withholding payments and the authorities are attempting to renegotiate the tariffs, all of which is putting projects at risk, warned analytics firm Crisil – a subsidiary of Standard & Poor.

The upheaval could "stress 5.2GW of renewables projects with estimated debt exposure of over INR 210 billion ($3bn)," Crisil wrote in a note.

"Around 5.2GW projects out of 7.5GW in Andhra Pradesh are supplying power to state distribution companies under long-term power purchase agreements (PPAs) at pre-determined tariffs," said Manish Gupta, senior director at Crisil.

"They now face renegotiation risk given that their tariffs are above the recent auction prices of below INR 3 per unit for renewable projects and average power purchase cost of INR 3.8 per unit in Andhra Pradesh in fiscal [year] 2019," Gupta added.

Crisil’s associate director, Ankit Hakhu, said roughly 2.6GW of generation was at "immediate risk" of defaulting in debt servicing, while the rest may have a lifeline because they are owned by larger corporations and can support the project liquidity.

The ongoing standoff between industry and the state will also ward off private investment into future renewables projects, Crisil warned.

"A quick resolution here is also necessary to prevent vitiating of investor confidence in the sector, which is crucial to achieving the central government’s goal of 175GW renewables capacity by fiscal 2022," Crisil said.

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