ICRA expects Budget to focus on power discoms, RE and gas plants revival

Credit rating agency ICRA on Wednesday said it expects Union Budget for FY21 to continue focus on measures for power distribution network strengthening and renewables. The agency said it expects higher budgetary allocation to strengthen power distribution infrastructure to enable improvement in operating efficiencies of state-owned distribution utilities. Measures to revive power distribution segment are also expected, given the weak finances of discoms and their large overdues to the power generation segment.

Support measures to revive stranded, gas-based power projects, augmenting availability of financing avenues for renewable projects and expediting green energy corridors are also on the demand list. The agency said in a statement that progress in improving the financial profile of discoms as envisaged under the earlier UDAY scheme has remained slow, as tariff revisions across most states has remained inadequate. Further, with higher subsidy dependence, the discoms booked losses, showing an uptrend in FY2020 at an all- India level.

This is also reflected by their large overdue payments towards power generation entities. “In this context, ICRA expects announcement of policy measures to incentivise the power distribution segment including higher budgetary allocation for strengthening the distribution infrastructure to enable an improvement in the operating efficiencies of discoms,” the statement said.

Nonetheless, timely implementation of such capex by discoms to curtail inefficiencies in line with regulatory targets, remains important. In addition, the adequacy of tariff as well as timely and adequate subsidy support from respective state governments to the discoms remains critical for ensuring the sustainable improvement in their financial position.

In view of the policy target of 175 GW by FY2022, the strong focus on the RE sector and the challenges faced by IPPs in achieving financial closure for RE projects, ICRA expects announcement of measures to enable the availability of adequate financing avenues for such projects.

Within the renewable segment, a significant push is thus required from both the Central and state governments to promote investments in the roof-top solar segment by providing incentives and an enabling regulatory framework to ensure the consistency and supportive net metering regulations as well as a single window approach to ensure procedural approvals. In addition, ICRA expects policy measures to revive the stranded, gas-based projects similar to the scheme implemented earlier to operate these projects using imported R-LNG and subsidy support. Such gas-based projects can be used to meet peak power demand and as a balancing power source as well, given the rising share of renewable generation in the overall energy mix.

Also, the execution of transmission network strengthening projects (both at intra-state and inter-state levels) for evacuation of renewables must be accelerated, with higher budgetary allocation. This also requires a fast track approach by Central/state nodal agencies as well as regulatory bodies for obtaining requisite approvals in a timely manner. Wind and solar power projects are likely to be concentrated in regions suitable for wind and solar power generation, respectively, while energy consumption is distributed across states, necessitating augmentation of the inter-state transmission network in a timely manner.

Source: Economic Times