NEW DELHI:  The Andhra Pradesh government’s order directing state power distributers (discoms) to review and reduce purchase cost of power could stress around 5.2 GW of renewable energy projects with debt exposure of over Rs 21,000 crore. Ratings firm Crisil said nearly half of this capacity is at higher risk of default since they lack liquidity support beyond project level.

The AP order on July 1, 2019, directs a high-level negotiation committee to use current rates, rates prevalent at the time of commissioning of projects, and the current opportunity cost of other sources of power to benchmark and renegotiate agreements.

“Around 5.2 GW projects out of 7.5 GW in AP are supplying power to state discoms under long-term power purchase agreements at pre-determined tariffs. They now face renegotiation risk, given that their tariffs are above the recent auction prices of below Rs 3 per unit for renewable projects and average power purchase cost of `3.8 per unit in AP in fiscal 2019,” said Manish Gupta, senior director, CRISIL. 

Assuming a typical debt funding per MW of Rs 4 crore, Crisil said, this would put around Rs 21,000 crore of debt at risk of default. Any adverse recommendation by the panel will prolong result in further delays in payment to the projects as generators will take the legal route, it said.