If one wishes to see birth of a non-performing asset (NPA), wind power sector in India offers a ring-side view. No where can one see Murphy’s Law being vindicated more strongly than in this sector where everything that can go wrong has gone wrong.

Wind power, which along with solar power was expected to make India a renewable energy powerhouse, is struggling for survival. There are states that do not want to purchase wind power, some do not want to pay for the power purchased while some others want all old contracts to be renegotiated at the lowest tariff rate. While these developments are taking place normally vocal power ministry seems to be missing in action.

A recent report says that payments of over Rs 2,000 crore is still pending from various state distribution utilities (discoms). Since September 2016 discoms in Madhya Pradesh, Maharashtra, Tamil Nadu and Andhra Pradesh, have been struggling to meet their payments.

The delay in payment of power generated to the extent of Rs 2,000 crore affects investments of well over Rs 10,000 crore. This, in turn, acts as a disincentive for investments in the sector both by the entrepreneur as well as risk-averse banks.

Even though there is a penalty clause for delayed payment, discoms are using it as a negotiation tool for payment. The news report quotes a wind power developer as saying that some of the discoms have been negotiating with developers to settle for a late payment surcharge of 7.5 percent, as against the stipulated 15 percent.

The report says that Maharashtra discoms forced all generators to agree to lower the late payment surcharge by 50 percent till May 31, 2017. After which, they cleared their outstanding from December 2015 to July 2016 between April and May this year.

Plight of wind power developers in Rajasthan is worst. Discoms in the state have been backing down on power generated through wind power generators. An official of the Wind Independent Power Producers Association (WIPPA) has been quoted as saying that 15-20 percent of wind power is curtailed every day. There are days when the discoms do not take any power generated by wind power producers. The fact that this is happening during the monsoon season, normally the windiest, is impacting the wind power generators the most.

Karnataka, on the other hand, has said that it is not interested in procuring wind power.

But one of the weirdest and blatant acts was done when discoms demanded wind power producers who had already started construction after signing a contract, to reduce their prices and match the federal auction price.

It is outrageous on the part of discoms to go back on their contract and is a big dampener for wind power sector in the country. If a legal contract is not honoured by state discoms there is little hope for the sector. The entire sector becomes risky and banks will be wary to lend money for the sector.

The only way out is to bid for federal auctions where a 25-year power agreement is signed by Power Trading Corporation (PTC). Though it assures visibility in cash flows, very low power tariffs affect the profitability of companies.

The current NPA crisis in the banking space has its roots in the policy paralysis of the previous government. Unless this government gets its house in order with respect to wind power, banks will witness a new set of NPA rising.