Renewable energy cos face hurdle as Andhra Pradesh wants new PPAs

Duke Energy Renewables

Attempt by the Andhra Pradesh state government in India to renegotiate its deals to purchase solar and wind power will hamper generators’ operating cash flows as state-owned distribution companies delay payments to generators, Fitch Ratings says.

Fitch will treat the successful renegotiation of the power purchase agreements (PPAs) , if any at all, as event risk in its credit assessment of rated bonds issued by restricted groups (RGs) of Indian renewable companies.

Andhra Pradesh state government formed a negotiation committee to renegotiate wind and solar PPAs in the state, citing the high tariffs that state distribution companies pay under the contracts.

The central government has cautioned the state against proceeding, but a recent statement by the principal advisor to the chief minister shows the Andhra Pradesh government is set on its path.

Fitch believes that the state government will need to appeal to state regulators and then seek consent from the courts to overturn the existing PPAs. The attempt to renegotiate or cancel PPAs previously approved by state regulators is likely to face legal challenge from renewable operators and the central government.

State distribution companies in other states, including Karnataka, Uttar Pradesh, Gujarat, Tamil Nadu and Madhya Pradesh, have previously tried to renegotiate PPAs to capitalise on falling solar and wind tariffs, according to press reports. However, the central government, supported by legal judgements, has instructed the companies to abide by the PPAs.

Distribution companies in Andhra Pradesh include Greenko Solar, Neerg Energy, Greenko Dutch, Azure Power Energy, ReNew RG II and AGEL – Pool 1.

If other state governments follow Andhra Pradesh’s move, the ratings on all the Fitch-rated RGs are likely to come under pressure due to delays in accounts receivable collection and weakening operating cash flow.