Renewable Energy Industry Reacts to Rs 90k Cr Stimulus for Discoms

The recently announced infusion of liquidity worth Rs 90,000 crore to Discoms against their receivables has been well received by the industry.

After PM Narendra Modi had announced a new Rs 20 trillion stimulus package in his recent messages to the public, Finance Minister Nirmala Sitharaman came to the rescue of the power sector in the country. While detailing the elements of the stimulus package the FM announced that PFC/REC will infuse liquidity of Rs 90,000 crore to Discoms against their receivables.

That is USD 11.8 billion out of the roughly USD 266 billion, or roughly just over 4 percent of the stimulus announced.

These loans are to be given against State guarantees for the exclusive purpose of discharging liabilities of Discoms to the generation companies. This, due to an unprecedented cash flow problem accentuated by demand reduction has seen Discoms payables to power generation and transmission companies rise to ~ Rs 94,000 crore, according to the ministry.

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Welcoming the quote, Sumant Sinha, CMD, ReNew Power said “the Rs 90,000 crore liquidity infusion into discoms will breathe fresh life into the power sector and protect distribution companies from going bankrupt. This money will help the discoms to repay most of the Rs 92,000 crore outstanding payments that they owe to power generators, restarting the virtuous cycle of liquidity, higher investments, and rapid growth for the power sector. This may also be an opportune time for the government to convince states to expedite distribution sector reforms so that distribution companies don’t need a bailout next time and are able to become financially viable entities.”

In the same tune, Gagan Vermani, Founder and CEO, MYSUN said “the provisions announced by the Prime Minister yesterday and detailed by the Finance Minister have infused some confidence and given the economy a much-needed injection of energy. The revision in the definition of MSMEs, Rs 90,000 crore for the distressed Discoms, and a major injection in the NBFCs are welcome moves. It would be interesting to see the implementation of collateral-free loans for the MSME sector in real terms as the banks have often been reluctant about such products. However, we welcome the announcement and look forward to playing a key role in helping the solar sector stand back on its feet.”

In the EV Sector, Maxson Lewis, Managing Director of Magenta Power said “the Finance Minister’s announcement focussed towards MSME is the right approach. Making capital available to the MSME sector which is the biggest employer is welcome. The EPF contribution will make sure money will go to people who are working for it. The cash infusion is required at the bottom of the pyramid.”

As per the announcements made by the FM, there isn’t anything specific planned for the renewable energy sector, as of yet. However, we believe the Rs 90,000 crores funds infusion will be a lifesaver for the sector, in terms of additional liquidity it provides to the whole supply ecosystem for Discoms. Sources inform us that these funds are likely to reach suppliers only by June end, as the finance firms tasked with releasing the funding, Power Finance Corporation and Rural Electrification Corporation, get down to the nitty gritties of ensuring conditions are met.