Credit rating agencies have welcomed the Andhra Pradesh High Court’s decision upholding the sanctity of power purchase agreements (PPAs) with private renewable energy generators that the State government had sought to annul and said the ruling would give a major boost for investor confidence.
The court’s order, overturning the September 2019 decision of a single judge permitting the State’s discoms to pay power producers at almost half the rate agreed in their contracts, could pave the way for improved liquidity for private solar and wind power generators, the agencies observed. That would, however, hinge on the State paying up its dues for the past three years as the court had ordered, and not filing an appeal in the Supreme Court, they added.
If the AP distribution utilities clear their outstanding dues in line with the PPAs within six weeks, Fitch Ratings expects the outstanding receivables to fall by 35% for ReNew Power Private Limited and 48% for Greenko Energy Holdings, it said in a note on Wednesday.
ICRA estimates an incremental impact on power purchase cost of about ₹10,500 crore, due to the dues that have piled up according to the original PPAs’ rates.
“The ruling will also bolster investor confidence in the renewable energy sector in India as risks of tariff renegotiation and payment delays are mitigated,” Fitch said, adding that delays may occur in the payments under the order that affirms that power tariffs fixed in PPAs cannot be reworked unilaterally.
The AP High Court order could also serve as a deterrent for other States trying to rework such contracts with power producers.
“The judgment underscored the importance of certainty in contracts by rejecting the plea that PPAs can be reopened on the ground of financial hardship, and will also act as a precedent for other similar misadventures such as those in Maharashtra and Punjab,” said Vishrov Mukherjee, partner at J. Sagar Associates who represented Green Infra Wind Solutions in writ appeals in the matter.
“The High Court order upholding the sanctity of the signed PPAs is a significant positive development for the renewable energy sector and thus, will provide a major liquidity relief for the affected independent power producers in the State,” said Girishkumar Kadam, senior vice president and co-group head - corporate ratings at ICRA.
However, given the weak financial profile of AP’s discoms, marked by continued losses and large debt, timely implementation of the HC order would need to be monitored, he added.