Outstanding payments to solar power generation companies (gencos) by cash-strapped distribution companies (discoms) in India is set to erode foreign investor confidence in the sector – and will potentially hit the earnings of foreign state-owned investors.

The Mint reports that by January, discoms across the country owed INR1.27 trillion (US$17.5 billion) to gencos, including INR32 billion owed to solar power producers in Telangana state. Among those worst affected are ReNew Power and Greenko, which have won significant backing from foreign state-owned investors.

Any dent in investor confidence undermines India’s efforts towards securing capital for electricity infrastructure. Growth in capacity has tended to lag behind demand growth, leading to load-shedding blackouts at peak times — a curse for the country’s manufacturing base as well as a population that aspires to enjoy the comforts of a developed economy.

India’s independent solar and wind power generators have been major beneficiaries of investment in rapid expansion of electricity generation, drawing around US$4 billion from ADIA, GIC, CPP and CDPQ in some of India’s leading renewable energy producers. India’s emerging green economy will require additional investments of US$ 330 billion between 2020-30, according to the government. India has set a target of achieving a 450GW renewable energy capacity by 2030, up from around 90GW presently with around 50GW capacity under execution and another 27GW tendered.

With their minds on technological innovation and environmental sustainability, yield-seeking sovereign investors will continue to remain exposed to India’s clean energy revolution.

Capitalizing on the Indian government’s renewables drive, GIC and ADIA combined forces in 2015 to turn Greenko Energy into one of India’s biggest solar and wind energy companies, investing more than US$2 billion. Greenko has a total renewable energy operational capacity of 6.2GW, making it India’s biggest renewables generator, with more gigawatts under construction. In 2019, CPP and ADIA — along with investment bank Goldman Sachs Group — subscribed to a rights issue by Indian clean energy firm ReNew Power, which claims to be India’s largest independent renewable-energy power producer in terms of total energy generation capacity. CPP and ADIA have pumped more than US$1 billion into the company.

According to The Mint, these firms have not received payments by state discoms since March 2020. In a letter to Telangana chief minister K. Chandrashekar Rao seen by The Mint, Telangana Solar Power Developer’s Association said: “Some projects have already become NPAs (non-performing assets) for non-payment of instalments to lenders and almost all of them are on the verge of becoming NPAs… This present financial position of our projects is also hurting the business sentiments of global investors to invest further in the state.”

Related funds NIIF