The Ministry of Power scheme to liquidate overdues that distribution companies (discoms) owe generation companies (gencos) can release the renewable energy (RE) producers’ past INR 9,000 crore ($1,151 million) worth of receivables over the next two fiscals, according to CRISIL Ratings analysts.
That could improve the receivables period for leading RE producers by 40-50 days from the current 180 days and improve the equity returns of some projects by up to one percentage point, the analysts added.
Manish Gupta, senior director, CRISIL Ratings, said, “The INR 9,000 crore of liquidated dues can support equity investments in 24 GW of under-implementation projects over the next two fiscals. Our calculation presumes that financially stronger discoms — such as in Gujarat and Maharashtra — would show better payment periods for RE projects than others that are expected to pay with an average delay of three to five months.”
Payment stretch has been one of the key risks for the RE sector. In March 2022, leading RE generators had receivables of about six months (similar to March 2019 level) despite their operational portfolio having an increasing share of central counterparties that clear payments within 30 days of the due date.
The receivables’ stretch has been caused by payment delays by select state counterparties such as Maharashtra, Rajasthan, Madhya Pradesh, Telangana, and Tamil Nadu. These have a high proportion in the offtake mix of RE gencos, with receivables of 8-14 months over the past three fiscals.
The problem is compounded by the unpredictable payment profiles of discoms, with large variations. For instance, the receivables cycle of the Telangana discom rose to 400 days as of March 31, 2022, from 250 days as of March 31, 2019. For the Maharashtra discom, it surged to 300 days from 70 days, according to Crisil analysis.
Such stretch can cause cash-flow mismatches for RE gencos, which rely on liquidity buffers and working capital to service their own debt. It forces them to go for additional working capital, the cost of which depresses equity returns.
Under the proposed scheme, dues, including late payment surcharge as on the cut-off date of June 3, 2022, will be converted into monthly installments that discoms will pay over the following 12-48 months. That would translate to immediate liquidity gains for RE gencos and can lead to better payment profiles.
Crisil expects this dues liquidation scheme to drive nearly half of the 40-50 days of improvement envisaged in the receivables cycle of RE projects.
Further, RE gencos analyzed by CRISIL have benefited in the past from a rising share of central counterparties in their operational portfolio. Central counterparties’ share in their operating portfolio was up to 40% last fiscal, compared to less than 25% in fiscal 2019.
Ankit Hakhu, director, CRISIL Ratings, expects the share of central utilities to increase further to 55% over the next two fiscals as a majority of the capacity to be commissioned has power purchase agreements tied up with central counterparties. “This is expected to contribute the balance projected decrease in receivable days of 40-50 days by March 2024,” he said.
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