Economy

Renewable energy players to add 16 GW capacity in FY23: ICRA

BL New Delhi Bureau | | Updated on: Jan 10, 2022
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The capacity addition would be driven by the solar segment followed by the wind and hybrid segments

The capacity addition by the renewable energy (RE) sector has been strong during FY22 with companies likely to add 12.5GW capacity. With a project pipeline of more than 55 GW, the sector is projected to add 16 GW capacity in FY23, ratings agency ICRA said on Monday.

“The backlog of projects awarded by the central nodal agencies and State Discoms remains large with under-development solar, wind and hybrid capacities of more than ~55 GW,” ICRA Senior VP & Co-Group Head (Corporate ratings) Girishkumar Kadam said.

This is also supported by the progress shown by the Solar Energy Corporation of India in signing of power sale agreements (PSAs) and power purchase agreements (PPAs) in the last six months.

Within the RE capacity, the capacity addition would be driven by the solar segment followed by the wind and hybrid segments, he added.

For instance, capacity addition witnessed a strong recovery in the first eight months of FY22 with 8.2 GW added against 3.4 GW added in 8M FY21. Besides, the commitment to climate change goals announced by the Prime Minister at the recent COP26 summit, including increasing the non-fossil power capacity to 500 GW and meeting 50 per cent of energy requirement from RE sources by 2030, further strengthens investment prospects.

Headwinds & project funding

However, the downside risks for RE in near term are from execution headwinds and supply chain challenges for procuring modules and wind turbine generators. Moreover, the average price of imported solar PV modules (Mono PERC) have increased by over 35 per cent over the past 12 months, putting upward pressure on capital costs for solar power projects.

Notwithstanding the same and the recent hike in GST rate for solar power equipment, the solar bid tariffs continue to remain highly competitive as seen from the quoted bid tariff of ₹2.17 per unit in December 2021. The ability of developers to secure modules within their budgeted costs and cost of debt funding at less than 8.5 per cent remains important to make these projects viable.

“On the other hand, the wind segment continues to witness subdued capacity addition owing to execution headwinds, financing challenges for few developers and weak financial profile of some of the OEMs leading to supply side constraints,” ICRA said.

Another challenge is securing project funding. ICRA VP & Sector Head (Corporate Ratings) Vikram V ICR said the investments required for achieving the non-fossil capacity target of 500 GW by FY2030 remains large at close to $300 billion. Besides, investments would be required in augmenting transmission infrastructure to integrate RE power with the electricity grid as well as investments to create storage infrastructure.

“ICRA expects the investments towards transmission infrastructure and storage capabilities to be about $150-200 billion over the next 8 years, taking the overall investment requirement to $450-500 billion. The availability of adequate funding avenues at cost competitive rates remains critical to achieve these capacity targets,” he added.

Collections

On collections front, ICRA said the overall dues to RE IPPs from distribution utilities (discoms) in the eight key States have gone up by 43 per cent to ₹19,400 crore as of December 2021 from ₹13,600 crore as of July 2021.

“This can be attributed to continued delays by discoms in Andhra Pradesh amid the tariff issue and a large increase in dues from Karnataka, Maharashtra, Madhya Pradesh and Telangana amid the liquidity stress faced by discoms in these states arising from inadequate tariffs and operating inefficiencies. Implementation of various reform oriented measures as well as timely tariff determination process including the focus on improving operating efficiencies by the state discoms remains key to turnaround the discom finances,” it added.

RE players performance/outlook

ICRA upgraded 24 entities against 13 downgrades in the solar and wind energy segment. The upgrades were driven by mix of factors such as reduction in project risk, demonstration of generation performance, improvement in parent credit profile and favourable debt refinancing, while the downgrades have been due to factors such as change in the sponsor profile, weak generation performance and delays in receiving payments.

The credit profile of the majority of ICRA-rated solar and wind independent power producers (IPPs) in FY22 YTD is supported by the satisfactory generation performance, availability of long-term PPAs, adequate liquidity buffer and presence of strong sponsors.

Accordingly, the agency’s outlook for the sector remains stable, driven by favourable policy support, superior tariff competitiveness, large untapped potential and presence of strong intermediate procurers like SECI.

Published on January 10, 2022

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