Payment delays in India raising operator costs, says Sembcorp

The Sembcorp Gayatri Power Complex in Andhra Pradesh, India.
The Sembcorp Gayatri Power Complex in Andhra Pradesh, India.PHOTO: SEMBCORP

NEW DELHI • Sembcorp Industries has said that recurring payment delays by Indian electricity retailers are piling on costs to operators and are bad for the renewable power business that it wants to build.

Payment delays risk "affecting development of the sector", Sembcorp India chief executive Vipul Tuli said in an interview in New Delhi.

The local unit of the Singapore conglomerate, which last month won an auction to supply wind power in India, already has US$4 billion (S$5.65 billion) of energy assets in the country.

Indian risks have made Semborp "conservative with investments in renewables," Mr Tuli said. Payment "delays of six to 12 months are common", which tacks on about 8 per cent of additional costs.

Indian Prime Minister Narendra Modi's green power ambitions are at risk, as state-run power retailers are not able to buy enough power and have run behind on payments to domestic and overseas clean energy companies. Their debts run to several hundred million dollars.

India is the largest contributor to Sembcorp's global power portfolio, with 900 megawatts of renewables and 2.6 gigawatts of coal.

Payment delays have prevented operators from passing on the declining cost of generating renewable power to consumers, according to Mr Tuli. Sembcorp's Indian unit, Green Infra Wind Energy Ltd, was one of five winners at a Feb 24 auction that drove wind power prices to a record low of 3.46 rupees (7 Singapore cents) a kilowatt hour.

With bigger projects coming up for bidding, Sembcorp could end up adding more capacities annually, he said. If renewable energy operators get payments, the industry will be able to lower tariffs. Otherwise, tariffs will remain higher because companies need to factor in higher receivables over longer periods of time.

India is the largest contributor to Sembcorp's global power portfolio, with 900 megawatts of renewables and 2.6 gigawatts of coal. The company wants to maintain its mix of thermal and clean power in India and aims for more than a quarter of generation to be renewable, Mr Tuli said. Sembcorp also owns power projects in Singapore, China, Vietnam and the Middle East.

Returns on average for the renewable power industry are 2 to 3 percentage points below the cost of capital, said Mr Tuli.

"A year ago, we would have looked at adding about 250 megawatts of renewables to our portfolio every year, but now it would be about 150 megawatts."

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A version of this article appeared in the print edition of The Straits Times on March 16, 2017, with the headline 'Payment delays in India raising operator costs, says Sembcorp'. Print Edition | Subscribe