Addressing Off-Taker Risk in Renewable Projects in India: A Framework for Designing a Payment Security Mechanism as a Credit Enhancement Device

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June 2018
Authors: 
Vinit Atal, Gireesh Shrimali, Vaibhav Pratap Singh
Source: 
Climate Policy Initiative (CPI)

One of the most important risks to the Indian renewable energy sector is the counterparty credit risk, associated with the risk of state-owned utilities delaying or defaulting on their contractual payments to power producers. Mitigating this risk requires long-term structural fixes aimed at solving the systematic failures of the utilities sector through coordinated efforts by the central and state governments and Stateowned electricity distribution companies (DISCOMs). The Addressing Off-Taker Risk in Renewable Projects in India: A Framework for Designing a Payment Security Mechanism as a Credit Enhancement Device technical paper presents a payment security mechanism that aims to enhance the credit quality of renewable energy projects in India by providing protection against defaults/delays in payment obligations due towards a project.

The paper recommends a five-step methodology for central and state level government agencies looking to provide financial risk mitigation interventions. The paper also presents a study of the probability of default by a renewable energy project in India in the two cases: without the presence of payment support (the base case), and in the presence of a given payment support mechanism (post-intervention).

Countries: 
India
Sectors: 
Energy, Finance