Sembcorp says India payment delays raising developer costs

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

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

Payment delays risk "affecting development of the sector," Sembcorp India chief executive officer Vipul Tuli said in an interview in New Delhi. The local unit of the Singaporean conglomerate, which last month won an auction to supply wind power in India, already has US$4 billion (S$5.64 billion) of energy assets in the country.

Indian risks have made Semborp "conservative with investments in renewables," Mr Tuli said. Payment "delays of 6-12 months are common" which tacks on about 8 percent of additional costs, he said.

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.

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

With bigger projects coming up for bidding, Sembcorp could end up adding more capacities annually, Mr Tuli said.

If renewable energy operators get payments, the industry will be able to lower tariffs, Mr Tuli said. Otherwise, tariffs will remain higher because companies need to factor in higher receivables over longer periods of time, he said.

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, Tuli said. Sembcorp also owns power projects in Singapore, China, Vietnam and the Middle East.

Ten-year average returns across all energy sectors - coal, renewables, oil and gas - are below the cost of capital, which is making it difficult to add new capacity in a sector that needs massive new investments, according to Tuli. Returns on average for the industry are 2-3 percentage points below the cost of capital, he said."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," he said.