AP high court’s order reinforcing the sanctity of PPAs, a positive for the renewable energy sector: ICRA

The high court of Andhra Pradesh upholding the sanctity of PPAs (power purchase agreements) is a positive development for the renewable energy sector, said ratings agency, ICRA. According to the Order, the HC has directed the state discoms to honor the terms of the signed PPAs and clear the pending payments, as per the agreed tariff under the PPA within six weeks from the date of the order.

“The order issued by the AP High Court 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 IPPs in the state,” Girishkumar Kadam, senior vice president & co-group head – corporate ratings, ICRA, said in the statement.

According to Kadam, pending resolution of PPA tariff renegotiation matters has been a key concern for the RE sector and in turn affected the credit profile of wind and solar IPPs in AP, especially the entities belonging to relatively weaker sponsor groups.

However, he stated that timely implementation of the HC order by the discoms is a key factor, given the weak financial profile of the discoms in AP marked by continued losses and large debt dependence.

Based on the direction by AP High Court, the incremental impact on power purchase cost is estimated at about Rs 10,500 crore, due to the build-up of dues arising out of the difference between the PPA rate and interim rate over the last 3-year period.

“Assuming this additional power purchase cost is approved as a regulatory asset to be amortised over a period of 5 years, the incremental impact on cost of power supply for AP discoms is estimated at 54 paise/unit, thus reflecting an upward pressure of 8.5 percent on average retail supply tariff for AP discoms,” Vikram V, Vice President & sector head corporate Ratings, ICRA said. The tariff order issued by Andhra Pradesh Electricity Regulatory Commission (APERC) for FY2022 has an approved annual revenue requirement for AP discoms which is based on an average RE purchase cost of Rs 2.55/unit, considering the interim PPA rate.

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