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Factoring the headwinds faced by the wind and solar energy power segments coupled with a gradual deterioration in the liquidity profile of the Independent Power Producers (IPPs) due to payment delays from some distribution utilities, ICRA has revised their rating outlook of almost one-third of its rated portfolio.
About 20% (1.9 GW) of the rated portfolio in wind and solar power segments in terms of installed capacity has been downgraded, while the rating outlook has been revised for another 10% of the portfolio. The industry segment is facing significant other headwinds in the near-term which has impacted investor sentiments.
The overall tendering of solar PV projects has slowed down with the solar capacity addition in six months of FY’2020 remaining subdued at 2.9 GW.
The solar capacity slowdown has begun and continued over the past 12-15 months, reflecting in FY’2019 capacity addition, which was 6.5 GW compared to 9.4 GW in FY’2018. On a calendar year basis, the overall tendering action is lower by 28% in 9 months of 2019 to about 7 GW on Y-o-Y basis with many bids remaining under-subscribed.
According to Girishkumar Kadam, Sector Head & Vice President, Corporate ratings, ICRA Ltd, “As per the data by Central Electricity Authority (CEA), payment dues to renewable players stood at approx Rs. 97 billion as on July 31, 2019 with almost 67% of it being contributed by utilities in three states namely Andhra Pradesh, Tamil Nadu and Telangana.”
“Such payment delays in Andhra Pradesh and Telangana along with uncertainty over resolution of tariff issue for projects (in Andhra Pradesh) and instances of grid curtailments have adversely affected the credit profile of the wind and solar power projects having PPAs with these state discoms,” he said.
Overall, the industry has been affected by a mix of factors such as continuing delays in payments from utilities in few states like Andhra Pradesh, Telangana and Tamil Nadu, regulatory uncertainty on tariff matters for IPPs and delays in tariff adoption by SERC in Andhra Pradesh, execution delays witnessed for land acquisition and transmission connectivity approvals and tight financing environment over the last 8-10 month period.
As a result, the ability to achieve the financial closure for the projects in a timely manner remains a challenge for many of the IPPs. As opposed to this, the industry segment had a decent capacity addition in FY’2018, supported by relatively sizeable capacity addition in open access segment due to favourable solar policies in Karnataka.
The long-term demand drivers for solar energy remain intact, given the strong policy focus and significantly improved tariff competitiveness of solar energy from the off-taker’s perspective
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