Demonetisation is helping a lot to power distribution companies as the unpaid bills are getting paid at faster pace.
Also by increase in liquidity of banks will help to reduce the lending rates to the power sector. With these Demonetisation it will improve the situation in sector by more foreign investment.
Demonetisation has turned out to be a positive event for the power sector with distribution companies recovering pending power bills from their customers, Mercom Capital Group said today.
Quoting a number of discoms and government officials on the issue, the consulting firm also said that the power sector could also benefit from relaxed lending and lower rates, among other things.
"Demonetisation has been chaotic and changing the way the Indian economy functions...banks suddenly flush with funds, all of which could relax lending to the power sector and potentially bring down interest rates," it said.
The government has mandated that the old notes of Rs 500 and Rs 1,000 denominations can be used to pay pending utility bills which will help discoms due to their huge backlog of unpaid bills.
Discoms are expecting a substantial influx of payments prior to the December 31 deadline after which these currency notes will become invalid. For cash-strapped discoms this is unexpected good news, it said.
It quoted an official at Maharashtra State Electricity Distribution Company Ltd as saying, "since the announcement of demonetisation, discoms in the state have seen payments of old bills cross Rs 1 billion ($ 14.74 million) within a week. The signs are positive as this will financially empower the discoms".
Due to the amnesty of taxes and penalties provided to black money holders (unaccounted currency), the government will have a huge influx of money that can to be allocated for infrastructural development and funding new projects, stated an official at Transmission Corporation of Telangana Ltd (TCTL), it said.
"India is largely a cash economy so in the short-term demonetisation is going to hurt installations as small developers will find it tough to pay for land acquisition, but in the long-term it will be beneficial as dicoms will get paid, lending rates will fall and foreign investment will increase in the face of a falling rupee and rising dollar," Mercom said quoting an official at the Ministry of New and Renewable Energy.
An official at Bihar State Power Holding Co Ltd informed the consultant that there are many ambitious projects like the Green Energy Transmission Corridor that require large investments and with consumers repaying pending bills and government taxing defaulters, nodal agencies foresee better fund allotment from the government.
It said officials at Jharkhand Renewable Energy Development Agency, Odisha Power Transmission Corp Ltd (OPTCL) and Power Management Company, Madhya Pradesh, all concurred due to demonetisation, peace is being restored in regions like Jammu & Kashmir and Jharkhand, Madhya Pradesh, Odisha, Andhra Pradesh [insurgency belt] as insurgents find it hard to fund their operations.
This will uplift the morale of developers in these regions and installations will pick up.
Tamil Nadu Generation and Distribution Corporation received tepid response for its 500 MW tender due to demonetisation, but it was an exception said an official at MNRE.
An official at Uttar Pradesh Power Transmission Corporation (UPTCL) stated that the state has been a classic example for unpaid electricity bills. Now the Discoms can get some relief with consumers using their stashed cash to pay pending bills as well as advance payment for future month's electricity bills in some cases.
A slew of government funded projects and subsidies are expected as cash deposits increase in banks, an official at the Rajasthan Renewable Energy Corporation said.
Demonetisation, Mercom said, is turning out to be an overall positive event for the renewable sector as well.
"This combined with the rapid decline in solar component costs is making a lot of low questionable bids feasible. However, we have to wait and see how government agencies handle the situation - especially payment issues - going forward," Mercom Capital Group CEO Raj Prabhu said.