State discom legacy dues togencos have more than halved from ₹1.38 lakh crore last June last year to ₹61,000 crore as of 24 July 2023.- This was due to the introduction of a late payment scheme which penalizes discoms for delaying payments.
Green Energy Open Access Rules also reduced the minimum offtake threshold for consumers.- Commercial & industrial consumers can also demand green power from state discoms voluntarily.
The scheme has made good progress with payment discipline amongst state distribution companies as state discom legacy dues to gencos have more than halved from ₹1.38 lakh crore in June last year to ₹61,000 crore as of 24 July 2023, says a report by CreditSights.
Also, Power Finance Corporation (PFC) and
What’s the scheme?
As per the scheme, state discoms who delay their payments beyond the default trigger date, will lose short-term power access. Apart from that, progressively these restrictions would increase each month for medium and long-term power access as well for each month of non-payment.
The scheme is a game changer for the renewable power generators who are stuck with large capex costs along with delayed payments.
“It (the scheme) reduced the counterparty credit risks posed by the state discoms. Not only would the state discoms have to clear their sizable backlog of owed dues to the gencos, they would also be more disincentivized to delay payments to the gencos given the punitive penalties,” said the CreditSights report.
Gencos who are able to receive timely payments can improve their account receivables, working capital positions and cash flows.
“Investor sentiment in the sector has also improved materially post the LPS scheme, based on our discussions with market participants,” CreditSights observed.
More green consumers
In the Union Budget 21-22, eligible Indian states were granted additional borrowing limits of 0.25% - 0.5% of annual Gross State Domestic Product (GSDP). This was applicable over a four-year period from FY22-FY25.
Some of these benefits have flowed to the state discoms. Till date, ₹66,400 crore of additional borrowing permissions have been granted to the states — for financial support to the state discoms, the report said.
The government also came up with Green Energy Open Access Rules in June last year, which helped improve offtake of renewable power. It reduced the renewable energy minimum offtake threshold of consumers from 1 MW to 100 kW. It also allows commercial & industrial consumers to demand green power on a voluntary basis from state discoms.
It also provided clarity on final tariffs charged to consumers of renewable energy, bringing in more transparency into the system. These new rules will drive better transparency, access and stronger demand for renewable energy across the smaller C&I customers, CreditSights opines.
The Indian government has set an ambitious target to convert 40% of total installed power capacity green by 2030. That means India would have to add 250 GW of renewable energy capacity between 2023-2027 – and it has been working actively to clear bottlenecks along the way, most of which is ensuring these green power producers are paid on time.