New financial instruments will offer power offtake certainty for renewable investors: IEEFA

The introduction of derivatives to India’s short-term power market will make it easier for renewable project developers to enter into offtake arrangements with the state-owned discoms, according to a latest report by the Institute for Energy Economics and Financial Analysis (IEEFA).

“The launch of new financial instruments will enable developers to hedge their offtaker risk without requiring the signing of long-term contracts with discoms for the financial closure of projects,” said author Vibhuti Garg, energy economist, lead India, IEEFA.

Long-term contracts between power producers and discoms comprise 88 per cent of electricity transactions in India. The report said that PPAs provide investors with certainty of offtake of power over a long duration and de-risk them from price volatility.

However, the Solar Energy Corporation of India currently has 15-16 gigawatts of auctioned capacity waiting to be signed by discoms, and this backlog of unsigned PPAs is now impacting the development of new renewable energy projects.

According to the report, discoms are struggling with huge financial losses and have become increasingly reluctant to enter long-term PPAs with renewable energy developers due to the discovery of record low renewable tariffs

ET Energy World
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