ICRA: Higher Receivables For Renewable IPPs In A Few States A Credit Concern
Renewable IPPs, especially wind and solar energy plants, are facing a mixed trend with respective to collection pattern from state distribution utilities, with worsening of receivable position in a few states emerging as a credit concern. As per ICRA note, the overdue receivable position for the renewable IPPs (wind & solar) in states such as Telangana and Andhra Pradesh have worsened to about 8 to 11 months, while that from utility in state of Tamil Nadu has been even higher with overdue receivable position exceeding 15 months for few entities rated in ICRA’s portfolio. This exposes the IPPs in these states to higher credit risks. On the positive side however, payments from the state utility in Maharashtra have seen a significant improvement with the overdue receivable position of about 4-5 month as on date for majority of the wind IPPs. Further, the payments from state utilities in states like Gujarat, Karnataka (mainly Bangalore Electricity Supply Company Ltd and Mangalore Electricity Supply Company Ltd) and Rajasthan continue to be in a timely manner.
Giving more insights on this, Mr. Sabyasachi Majumdar, Senior Vice President & Group Head - Corporate ratings, ICRA, says, “While the increased receivables are being met through a mix of available working capital facility and debt service reserve account (DSRA), besides the incremental funding support from the parent, any further worsening of the receivable cycle remains a credit concern. This is especially true for IPPs with single counter-party exposure and belonging to the promoter groups having low / moderate financial flexibility. Under these circumstances, IPPs having multi-locational assets with diversified counter-party exposure remain relatively better placed to mitigate such payment risks as against the projects having a single counter-party exposure.”
Further, IPPs (especially wind based due to highly invariable nature of energy) remain exposed to risk of grid curtailment especially in peak season, which has been seen for IPPs in state of Karnataka in the recent past and this is in addition to states like Tamil Nadu and Rajasthan, wherein grid backdowns have been seen prominently in the past period.
“The progress in term of the implementation of scheduling & forecasting regulations by State Electricity Regulatory Commission (SERCs) although slow so far (i.e. effective by State Load Dispatch Centers (SLDCs) in state of Karnataka & Madhya Pradesh), should provide some relief. The same is likely to be implemented in most other states having renewable energy potential in near term, and provide relief for the IPPs against such risk going forward; however, the extent of reduction in such grid backdown in a sustained manner remains to be seen,” says Mr. Majumdar.