Payment delays in India by power distribution companies (also known as DISCOM) are affecting the cash flow of solar and wind energy companies in the country.
This is not a new problem. Payment delays were a persistent problem a few years ago. The situation improved briefly but has now deteriorated again.
The late payment problems are worst in the states of Andhra Pradesh, Tamil Nadu, and Telangana. These states have major solar markets with about 9 Giga Watts of large-scale operating solar projects combined, according to Mercom’s 2018 Q4 & Annual India Solar Market Update.
The renewable energy project developers sell solar and wind energy cheaply to government agencies, at around US$0.038 per kWh for solar tariffs and US$0.037/kWh for wind tariffs. With low profit margins and borrowings from banks, late payments from the government means these companies might find it difficult to service bank interest and could default on payments.
A top executive at an energy company told Mercom India that in Tamil Nadu, payments for solar and wind energy projects have been delayed for more than a year. In Telangana, the delay has been about ten months, and in Andhra Pradesh, the delay is about seven to eight months.
An officer from NTPC, India's utility company, told Mercom India that payment delays are a big setback as capital gets stuck and affects operations.
One way the companies will be affected is their ability to bid for new projects due to insufficient cash flow. They will not tend to bid on projects in auctions that have aggressive tariff caps which will result in tight margins. Plus, the project might carry uncertain payments, which make them very risky propositions.
As of March 2019, outstanding dues by DISCOM were recorded at INR 386.96 billion (US$7.16 billion). This is almost unchanged from the figure at the beginning of this year.