As India’s Discoms Snag $11.8 billion credit line, Renewable Energy Waits On Stimulus Too

A day after Prime Minister Narendra Modi announced a Rs twenty Trillion stimulus package for the economy, some key details were shared by the finance minister. There is good news for the power sector at last

Good News for the power sector is by extension, good news for the renewable energy sector in India, considering how closely its fortunes are tied to the health of the state discoms that buy energy across the country. In that respect, there was much to be satisfied about today, as the finance minister, Mrs Nirmala Sitharaman, and the Minister of State for finance, Anurag Thajur, unveiled the first  list of beneficiaries from the stimulus.

Faced by an unprecedented cash flow problem accentuated by demand reduction DISCOM payables to Power Generation and Transmission Companies is currently ~ Rs 94,000 cr, according to the ministry.  Now, PFC/REC, two central funding agencies,  will infuse liquidity of Rs 90,000 cr to DISCOMs against their receivables. That $11.8 billion out of the roughly $266 billion stimulus announced.

These loans are to be given against State guarantees for the exclusive purpose of discharging liabilities of Discoms to Gencos. The move should help gencos across categories massively, including the renewable energy sector in the foreseeable future.
Further, these funds will also be linked  to specific activities/reforms : Digital payments facility by Discoms for consumers, liquidation of outstanding dues of State Governments, Plan to reduce financial and operational losses.
Central Public Sector Generation Companies shall give rebate to Discoms which shall be passed on to the final consumers (industries). Details on this, which will impact firms like NTPC , NHPC etc are awaited.

Interestingly, the list of announcements today didnot have anything specific for the the renewable energy sector, which has been looking forward to measures to support both manufacturing in India in the sector, as well as further growth in capacity building. For India’s transition to a lower emissions electricity grid, a higher renewable energy share has been considered essential, and the country itself has committed to a 40 % share in the grid capacity by 2030.  The march towards the numbers has been beset with issues in both land, liquidity and the law, three of the four issues (labour being the 4th) flagged by Mr Modi for special attention in his stimulus announcement yesterday.

For now, the Rs 90,000 crores ( $ 11.8 billion approx)  funds infusion will be a life saver for the power sector generation firms, in terms of additional liquidity it provides to the whole supplier eco system for discoms. As of now, it does appear that critical reforms, especially in terms of subsidy disbursal, smart meter roll out and many others will depend on the passage of the Electricity act (amendment) bill, 2020.

Keep in mind that clarifications that follow announcements have become  send nature for our governance now, and gencos would know that  better than most, as they look forward to welcome relief soon.

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Prasanna Singh

Prasanna Singh

Prasanna Singh is the founder at IamRenew

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