Why offtakers risk matters ?

The recent report released by Niti Aayog “India Green Stimulus Report” highlights the status of Indian Discoms in terms of their profitability. Over 80% of the Discoms are in RED. During the Covid period, the financial health of these Discoms has worsened. Discoms owed a total of Rs 1,17,026 crore to power generation firms in May 2021, according to portal PRAAPTI (Payment Ratification And Analysis in Power procurement for bringing Transparency in Invoicing of generators). On a sequential basis too, total dues in May 2022 increased from Rs 1,20,954 crore in April 2022.

While we have reached close to 100 GW of solar and wind installations, many generation companies are facing the problems of moving ahead with the concerns of raising debt due to high offtaker risk.

1. Though the electricity demand is growing, but at the same time, power purchase agreements (PPAs) are already being challenged by Discoms due to overcapacity in generation.
2. Existing thermal plants running at low capacity factors, minimal use of power exchanges, and an increasing share of must-run renewables have led to uneconomic dispatch and higher power costs, with both planned and unplanned curtailment on the rise.
3. Discoms are refraining from signing new PPAs/PSAs, challenging the power sector’s decarbonization goals as well as the 2022 target of 175 GW and 500 GW by 2030.
4. The government of India recently announced a discom sector stimulus of Rs 90,000 crore (US$12 billion). It is a liquidity infusion that intends to help discoms with immediate debt repayments and delayed payments to generation companies.
5. The LCOE of renewables has dropped so much over the past decade that solar and wind are now more cost-effective than coal, without government subsidy

While, we need to address the off taker credit risk to bring new investments in renewables, there is an equal challenge in terms of successful integration of these variable renewable energy (VRE) sources given their intermittency and geographical concentration and ensuring optimal market condition to enable value maximization.