Discom Hindering Growth of the Renewable Sector Due to Its Neck-Deep Debt

Delay in payments by the distribution companies Discoms’ continue to pose a threat to the budding Indian renewable energy sector. India has an ambitious target of achieving 175 Gigawatts capacity of installation by the year 2022, said Mercom India. The tariff in both the sectors: solar and wind projects fell to an all-time low recently.

The Rewa Solar Park auction marked the historic all-time low in solar tariff in India at Rs 3.30 (i.e. $0.494) per kWh (levelized tariff over time span of 25 years). 

However, in its 1st project bidding for the wind energy sector, it recorded a tariff of Rs 3.46/unit for about 1,000 Megawatt project.


A Mercom report said, “With these extremely low tariffs, having problems in developers are looking at best-case scenarios with margins for error nearly non-existent. Payment delays are adding to project costs as banks charge higher interest rates due to projects being built in high-risk states known for payment issues, obstructing investment into the sector.”

From the past 3 years, the Maharashtra State Electricity Distribution Company Ltd (MSEDCL) has not been buying power from the wind power generators. Similarly, states like Telangana and Andhra Pradesh are having issues with making payment on time. It was reported by Mercom previously that Rajasthan, Maharashtra and Tamil Nadu have a consistent track record of delayed payments and limitation of renewable energy. 

Raj Prabhu, the CEO and co-founder of the Mercom Capital Group said – “Tariffs are falling at a record pace in solar due to a rapid decline in component costs, which is a welcome development for states which will see their power purchase costs decline. However, further drops in tariffs are in the hands of the government, which can reduce risks by removing hurdles like payment delays, transmission issues and curtailment, all of which are interlinked. By removing these risks, borrowing becomes cheaper for developers.”

Due to the ongoing legacy issues, Discoms are trapped in a vicious cycle with many operational losses that are being funded by debts.

Discoms’ losses are either due to commercial reasons or technical reasons. Now, the losses faced due to technical reasons could be reduced by using modern equipment and innovative technology for transmission and distribution of electricity. However, at the commercial level, the incurred losses could be managed by fighting off the pressure to offer electric supply free of cost to certain groups.

Another method would be by smartly pricing the electricity based on the input, transmission, production and distribution along with a balanced and healthy profit. It shouldn’t be based on political expediency. In addition, steps must be taken to reduce the cases of electricity thefts.

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