Evaluate the following statements pertaining to the risks associated with the Power Generation Sector and the mechanisms used to mitigate them for banks: Statement I: The Fuel Supply Risk in thermal power projects is mitigated by mandatory Power Purchase Agreements (PPAs) that require the developer to source fuel entirely from Coal India Limited (CIL) at a regulated price. Statement II: The most critical risk for banks financing Renewable Energy (RE) projects is Counterparty Risk, primarily arising from the risk of default by State Electricity Distribution Companies (DISCOMs) on payments under the PPA. Statement III: The mechanism of providing a Letter of Comfort (LOC) by the Central Government for loans extended to State-owned Power Finance Corporations (PFC) or Rural Electrification Corporation (REC) fully eliminates the Credit Risk for commercial banks.

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Current Affairs · Banking and Finance

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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Correct answer

Only Statement II is correct.

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Answer 1

Only Statement II and Statement III are correct.

Answer 2

Only Statement I and Statement II are correct.

Answer 3

Only Statement II is correct.

Answer 4

Only Statement I and Statement III are correct.

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