While there is a slowdown in renewable energy (RE) capacity addition to 7.4 GW in FY2021 from 8.7 GW in FY2020 due to the impact of Covid-19, credit rating agency ICRA expects it to improve to 10.5-11 GW in FY2022, led by a strong 38-GW project pipeline.

In addition, more than 20 GW RE projects are in the tendering phase from various nodal agencies, providing capacity addition over the medium-term.

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Girishkumar Kadam, Senior Vice-President and Co-Group Head – Corporate Ratings, ICRA, said in a statement, “The RE sector is expected to witness investments of ₹3.5 trillion over the next four years, increasing the share of RE capacity to 34 per cent of the overall installed capacity by March 2025 from 25 per cent as of March 2021, led by the solar power segment.

“However, delays in the signing of PPAs/PSAs, as observed in the past, and cancellation of bids owing to expectations of a reduction in tariff rates, remain a key challenge. Given the expected rise in solar bid tariffs in the upcoming auctions, amid the rise in module prices and imposition of basic customs duty (BCD) on imported solar PV cells and modules from April 2022, progress is expected in the signing of PPAs/PSAs for the earlier awarded tenders by the central intermediate procurers.”

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Despite the rise in tariff, solar power tariffs are expected to remain below ₹3 per unit and cost-competitive against the marginal cost of generation from thermal sources in the bottom 25 per cent of the merit order dispatch. On the other hand, execution challenges persist for under-construction projects in the form of land acquisition and evacuation infrastructure, especially in the wind power segment. In this context, the Government has approved extending the commissioning timeline by 2.5 months, considering the impact of the second wave of Covid-19.

The Government has extended the waiver on inter-state transmission charges for wind and solar power projects commissioned till June 2025; the previous cut-off was June 2023.

The demand outlook for domestic solar OEMs remains favourable, with strong policy support through imposition of BCD on imported cells and modules, and the notification of the production-linked incentive (PLI) scheme; there is also a strong order pipeline of 35-40 GW over the next three to five years from various schemes requiring the use of domestic modules. The delay in the inclusion of overseas suppliers in the Approved List of Models and Manufacturers (ALMM) could further support the demand for domestic module OEMs in the near term.

Vikram V, Vice-President and Sector Head – Corporate Ratings, ICRA, said, “The policy push for the promotion of domestic module manufacturing is expected to improve the cost-competitiveness of domestic OEMs and has led to new capacity announcements of more than 15 GW by various OEMs. The timely commissioning of these new capacities remains important to meet the growing demand from the developers, given the current capacity constraints. The ability of the OEMs to achieve backward integration and build economies of scale would be important to remain competitive against overseas suppliers on a sustained basis.”

The credit profile of operational RE projects remains constrained by the exposure to discoms in states such as Andhra Pradesh, Telangana and Tamil Nadu, with large payment overdues. The overall dues from discoms to RE IPPs remained high at ₹11,840 crore as of April 2021, declining marginally from ₹12,270 crore as of January 2021, as per data from the PRAAPTI portal, which tracks payment dues.

The credit profile of ICRA-rated RE IPPs is supported by the presence of liquidity buffer in the form of debt service reserve or working capital and relatively strong sponsor profile. Overall, ICRA’s outlook for the RE sector remains stable, driven by factors such as continued government policy support, large growth potential, the presence of creditworthy central nodal agencies as intermediary procurers, and tariff competitiveness.

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