How payment security mechanism works
Counterparty risk from payment delays or defaults by distribution companies (discoms) is a major concern for power producers in India, where 88% of power offtake is through long-term contracts. Discoms' poor financial health impacts the cost of capital for producers and delays payments, threatening business viability. The government has implemented multiple payment security mechanisms, such as letters of credit and state guarantees, to mitigate this risk and protect investor confidence.
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India's removal from GSP list of US
The US Generalized System of Preferences (GSP) promotes economic growth in 121 developing countries by allowing duty-free treatment for nearly 5,000 products. In 2018, $23 billion worth of goods were imported under this program. India was the largest beneficiary, exporting $6.3 billion, followed by Thailand and Brazil.
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Offtake risk in renewable energy sector in India
An offtaker, typically an electricity distribution company, contracts to buy power from producers via Power Purchase Agreements (PPAs). Offtake risk includes curtailment risk, where the plant can't operate optimally, and payment risk, where power isn't paid for on time. Both risks negatively impact revenue and investor returns.
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Role of central and state government in power sector in India
Electricity in India is a regulated sector where both central and state governments share responsibilities. They regulate and operate the electricity market collaboratively. Key stakeholders are involved in policy-making, regulation, and essential market functions like generation, transmission, and operation and more.
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At CEEW-CEF, we are dedicated to facilitating the energy transition through innovative financial solutions. As a non-partisan entity, we observe, develop, test, and deploy strategies that deepen markets, boost transparency, and attract investment in clean energy sectors within emerging economies. As part of the Council on Energy, Environment and Water (CEEW), Asia’s premier think tank, CEEW-CEF stands at the forefront of energy finance, driving sustainable development and economic growth.
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