The Andhra Supreme Court has ordered renewable energy PPAs to boost investor confidence

Order could also act as a deterrent to other states trying to revise such treaties

Order could also act as a deterrent to other states trying to revise such treaties

Rating agencies have welcomed the Andhra Pradesh High Court’s decision upholding the sanctity of power purchase agreements (PPAs) with private renewable energy producers that the state government wanted to annul, saying the ruling would significantly boost investor confidence.

The court’s order, which overturned a September 2019 single judge’s decision that allowed state discounters to pay electricity producers nearly half the contracted rate, could pave the way for improved liquidity for residential solar and wind generators, the noted agencies. But that would be conditional on the state paying its fees for the past three years as ordered by the court and not filing an appeal with the Supreme Court, they added.

If AP distributors settle their outstanding dues under the PPAs within six weeks, Fitch Ratings expects outstanding receivables to decrease by 35% for ReNew Power Private Limited and 48% for Greenko Energy Holdings, it said in a statement dated Wednesday.

ICRA estimates an incremental impact on electricity purchase costs of approximately 10,500 crore due to the charges accumulated under the original PPA rates.

“The ruling will also boost investor confidence in the renewable energy sector in India by mitigating the risk of tariff renegotiations and payment delays,” Fitch said, adding that there could be delays in payments under the order, which confirms that the electricity tariffs set in PPAs cannot be unilaterally revised.

The AP High Court order could also serve as a deterrent to other states trying to revise such contracts with generators.

“The ruling underscored the importance of contract security by dismissing the objection that PPAs can be reopened due to financial hardship, and will also serve as a precedent for other similar mishaps like those in Maharashtra and Punjab,” said Vishrov Mukherjee. Partner at J. Sagar Associates who represented Green Infra Wind Solutions on written appeals on the matter.

“The High Court’s order, which upholds the sanctity of the signed PPAs, is a significant positive development for the renewable energy sector and will therefore provide significant liquidity relief to affected independent power producers in the state,” said Girishkumar Kadam, senior vice president and Co-Group Leader – Corporate Ratings at ICRA.

However, given the weak financial profile of APs Discos, characterized by persistent losses and high debt, the timely implementation of the HC regulation needs to be monitored, he added.

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