Net Zero Summit

Renewable energy developers remain exposed to regulatory risk: Icra

Renewable energy developers having a significant exposure to third-party power purchase agreements remain exposed to regulatory risks as open access charges in such pacts are likely to increase to mitigate the cash flow issues of discoms in the wake of COVID-19 pandemic, says Icra.

Third party PPA refers to an arrangement where a renewable energy developer owns, operates, and maintains the project and a captive user agrees to purchase the electricity from the project for a predetermined period for a tariff which is lower than grid tariffs.

“Renewable energy developers, based on third party or group captive off-take remain exposed to regulatory risk,” Icra’s Sector Head and Vice President Girishkumar Kadam said.

The risk is set to augment even more, given the likelihood of an increase in open access charges due to an adverse impact of the COVID-19-related lockdown on cash flows and revenue profile of state-owned distribution utilities, Kadam said further.

Power policies in many states have been amended over a period wherein they have either completely withdrawn or reduced incentives given to open access customers, mainly commercial and industrial consumers, for power procurement from renewable energy projects, as tariff competitiveness of wind and solar power has shown a significant improvement.

Icra noted that the open access charges applicable in case of third party sale of power have also shown an increasing trend across the key states, highlighting the rising regulatory risk for such IPPs.

Earlier, the state power policies were attractive for open access based renewable power projects as concessions were available from levy of cross-subsidy surcharge, transmission and wheeling charges as well as favourable banking facilities to promote the renewable sector, the agency said.

In April this year, Maharashtra Electricity Regulatory Commission (MERC) approved the levy of additional surcharge on group captive projects.

“Group captive consumers were earlier exempt from such levy in Maharashtra. Risk of such levy by SERCs in other states cannot be ruled out for group captive IPPs,” Icra noted.

Kadam further said that with the improved tariff competitiveness for wind and solar energy against the conventional power sources, the open access charges for renewable energy projects are likely to remain aligned as that for conventional power sources, going ahead.

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