Court Ruling Positive for Indian Renewable Generators' Liquidity

Fitch Ratings-Singapore-: A recent ruling by the High Court of Andhra Pradesh (AP) that directs distribution utilities in the Indian state to make long-delayed payments to renewable generators and upholds the terms of power-purchase agreements (PPAs) will help generators' liquidity positions, Fitch Ratings says.

Fitch estimates that the receivables outstanding for ReNew Power Private Limited (BB-/Stable) are likely to reduce by 35% and that for Greenko Energy Holdings (BB/Negative) by 48%, if the AP distribution utilities clear their outstanding dues in line with the PPAs within six weeks, as ordered by the court.

We expect the liquidity positions of restricted groups (RGs) rated under Fitch’s Infrastructure and Project Finance Rating Criteria that have exposure to AP utilities to also improve if they receive payments. These RGs comprise: India Green Power Holdings (US dollar notes: BB-/Stable), which has 35% of its capacity exposed to AP utilities; India Green Energy Holdings (US dollar notes: BB-/Stable) with 12%; ReNew Power Restricted Group 4 (US dollar notes: BB-/Stable) with 12% and Azure Power Energy Ltd (US dollar notes: BB+/Stable) with 8%.

However, we believe there may be delays in the payments and the generators' receivables may improve only gradually. The state may also appeal the court ruling. Fitch will continue to monitor the developments closely and assess the impact on the financial profiles of rated issuers once there is more certainty on the timing of the receipt of the receivables.

AP distribution utilities have been delaying payments to generators for last three years after the state government formed a high-level negotiation committee in July 2019 to renegotiate wind and solar PPAs in the state, citing the high tariffs under the contracts. The receivables also accumulated due to delays in court hearings amid Covid-19-related disruptions.

Greenko’s receivable days deteriorated from 271 in March 2019 to 358 in December 2022; with AP utilities accounting for around 50% of December 2022 receivables as they off-take around 25% of Greenko's capacity. ReNew’s receivable days rose from 163 to 243 over the same period, with AP utilities accounting for 36% of December 2022 receivables. The receivable positions of the RGs with exposure to AP utilities also deteriorated significantly over last two to three years.

We expect receivable days for Greenko to fall to 150 by March 2023 from our current assumption of 280 days, assuming the AP distribution utilities do not appeal the court ruling, clear the outstanding dues and continue to make future payments in time as ordered. The same for ReNew would improve to below 100 days from our current expectation of 141.

The High Court judgement on 15 March 2022 affirmed that tariffs fixed in the PPAs cannot be renegotiated during the term of the PPAs, typically 25 years. Changes to the PPAs, if any, can be made with the consent of both parties and not unilaterally. The court also set aside the December 2019 judgement by the same court to make interim payments based on tariffs of INR2.43/kWh and INR2.44/kWh for wind and solar power generation, respectively, which were around half the tariffs in the PPAs. Fitch believes that the ruling will also bolster investor confidence in the renewable energy sector in India as risks of tariff renegotiation and payment delays are mitigated.