India’s ‘chaotic’ demonetization helps Discoms recover power bills

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit
Share on email
Email
Discoms are expecting massive increases in power bill recovery and banks are flush with funds. Flickr: Gopal Vijayarhagavan

India’s ongoing demonetization scheme, which has divided opinion globally, looks set to improve the finances of Indian distribution companies (Discoms) in what could be a boon for the solar sector, according to consultancy firm Mercom Capital Group.

Large backlogs of delayed payments have been a traditional strain on Discoms' financial health, but the utilities are now expecting to be able to recover significant quantities of these pending power bills from customers as a result of the demonitization programme. This combined with banks suddenly being “flush with funds” may have created a more favourable environment for lending to the renewables sector, said Mercom.

The PV industry has been looking on to see how developers will be able to complete solar projects at the very low tariffs awarded in India over the last year, especially with ongoing troubles of Discom debt and delayed payments.

However, Raj Prabhu, chief executive of Mercom Capital Group, said: “Demonetization, though chaotic, is turning out to be an overall positive event for the renewable sector in the long run. This combined with the rapid decline in solar component costs is making a lot of low questionable bids feasible. However, we have to wait and see how government agencies handle the situation – especially payment issues – going forward.”

The demonetisation scheme, which aims to rid India of black money, has given Indian’s until the end of the year to return all 500 and 1,000 rupee notes in exchange for updated 500 and 2,000 rupee notes.

Importantly for the Discoms, the government said the soon-to-be-defunct 500 and 1,000 notes can be used to pay outstanding utility bills.

A Ministry of New and Renewable Energy (MNRE) told Mercom: “India is largely a cash economy so in the short-term demonetization is going to hurt installations as small developers will find it tough to pay for land acquisition, but, in the long-term it will be beneficial as Discoms will get paid, lending rates will fall and foreign investment will increase in the face of a falling rupee and rising dollar.”

Other officials at Discoms and transmission companies in Maharashtra, Telangana, Rajsathan and Uttar Pradesh told Mercom that demonetization is likely to “financially empower” Discoms while the taxes on holders of unaccounted money will provide a major injection of funds for the government to spend on infrastructure.

Officials in some of the more restless states have also said that the demonetisation programme has already impacted insurgent groups by making it difficult for them to fund operations. As a result PV developers in Jammu & Kashmir, Jharkhand, Madhya Pradesh, Odisha and Andhra Pradesh may have more confidence and installations could increase.

On the other hand, Mercom reported that lenders are still cautious about whether all the new cash deposits will remain in the banks after the 31 December deadline. Meanwhile, developers are concerned about availability of cash to pay construction workers and complete projects on time. However, such problems could be balanced out by the widely expected reduction in interest rates.

Read Next

July 20, 2021
It is “unhealthy” for China to dominate solar manufacturing and production bases outside of the country are necessary to reduce the risk of supply chain disruptions, an Indian government official has said.
July 20, 2021
Vikram Solar has completed a new 1.3GW solar module manufacturing facility in Tamil Nadu, India, taking its total manufacturing output to 2.5GW.
July 14, 2021
India government-owned NTPC Renewable Energy has been given approval by India’s Ministry of New and Renewable Energy (MNRE) to build a 4.75GW solar project in Gujarat, India.
July 13, 2021
Solar PV capacity in Asia Pacific could triple to 1,500GW by 2030, with China driving deployment and Indonesia set to be the region’s fastest-growing market, according to Wood Mackenzie.
July 9, 2021
Corporate funding in the global solar sector in the first half of 2021 was up almost threefold year-on-year, according to a new report from Mercom Capital Group.
June 28, 2021
Module and cell manufacturers in India will expand their production capabilities by 13.75GW for modules and 6.9GW for solar cells, according to research by JMK Research and Analytics

Subscribe to Newsletter

Upcoming Events

Solar Media Events, Upcoming Webinars
July 29, 2021
Webinar
Upcoming Webinars
August 19, 2021
At 9am (PT) | 6pm (CEST)
Solar Media Events
August 25, 2021
Solar Media Events, Upcoming Webinars
October 6, 2021