Investors could be put off India by Andhra Pradesh state's difficult relationship with renewable energy companies, Sumant Sinha, chair of Goldman Sachs-backed ReNew Power, said on Thursday.
India, the world's third-largest emitter of greenhouse gases, wants to raise its renewable energy capacity to 500 gigawatts (GW), or 40% of total capacity, by 2030.
The southern state of Andhra Pradesh is among the largest adopters of renewable energy and ReNew Power, about 49% owned by Goldman Sachs, is India's largest renewable energy company.
But the state has been curtailing power procurement from renewable energy companies, citing high prices, and pushed to renegotiate its supply contracts with them.
"There are questions on what this means for sanctity of contracts in India. That has made investors jittery," Sinha told Reuters.
Foreign investment is central to India's green energy ambitions, and a slowdown in overseas funding could hurt Prime Minister Narendra Modi's commitment to increase adoption of renewable energy.
"The longer the issue carries on, the less likely (the renewable energy) target will be met," Sinha said.
ReNew has an installed capacity of over 5 gigawatts (GW) and plans to add another 3 GW by mid-2021.
India's federal government, the state-controlled NTPC Ltd, Solar Energy Corp of India and the Japanese ambassador of Japan have all asked Andhra Pradesh not to try to renegotiate renewables contracts.
And in August, a court in Andhra Pradesh ordered the state transmission companies to refrain from "arbitrary and discriminatory" curtailing of power from generating companies.
Andhra Pradesh, which accounts for about a 10th of India's renewable energy capacity, owes green energy generators 25.1 billion rupees ($353.5 million).
That is the highest by any state in India and accounts for a over fourth of all dues owed by province-owned distribution companies, according to latest data published by the Central Electricity Authority (CEA).
But Sinha said late payment by distribution companies overall was not as severe as it had been a few years ago. Along with land acquisition, delayed payment is seen as a major challenge to growth of the renewable energy sector in India.
"With the exception of states like Tamil Nadu and Andhra Pradesh, most states have started paying on time," he said.