Investment Crunch, Discoms Twin Hurdles to India’s 2070 RE target : Moody’s

Moody’s Investors Service said in a report on June 13 that India needs a shift in its energy mix toward renewable energy and improve financial health of state owned distribution companies (discoms) if it is to reach its net-zero emission by 2070. It is worth remembering that in just the Modi government’s tenure, we have seen three major efforts made to fix the discom financial mess, with varying degress of success, but never enough clearly.

Not only the supportive government policies, private sector participation and low cost capital but the timely payment to the enterprises should also be made non negotiable by the government, added the report.

Although the government has continued its attempts to encourage, attract more and more private sector and overseas investors everyday to participate in renewables, yet the investment of around $225-250 billion is needed to meet the 2030 renewable targets.

Abhishek Tyagi, a Moody’s Vice President and Senior Credit Officer, said, “The country aims to triple its renewable energy capacity to 500GW by 2030 from 157GW as of March 2022, and to have 50% of the electricity generation from non-fossil fuel sources. The key enabler will be the competitiveness of wind and solar generation over coal-fired power generation because of technological developments, supportive government policies, private sector participation,”.

The renewable energy footprint has grown dramatically over the last 4-5 years as a result of favourable government policies encouraging the domestic and international investors to participate in the sector. There can never be enough of support from a government.

Another hurdle to the renewable energy sector is the poor financial health of India’s state-owned distribution businesses. The populist politics has caused increasing delays which result in a buildup of receivables from the off-takers and an increase in working capital debt for renewable energy companies, the report said.

The weak financials of state-owned distribution companies have led to not only delays in the signing of Power Purchase Agreements (PPAs) but occasional cancellations. There is no history of distribution companies not making payments to distribution companies according to PPA tariff (if undisputed), Moody’s said.

While Moody’s does not say it, the continued failure of the government, and parliament to pass the Electricity Amendment Bill (2021) points to the massive political and financial hurdles that need to be crossed to truly put the power sector on a reform path. Short of that, every effort seems destined to serve a few states at best, without fixing the broad problems of the sector.