Despite the slowdown in renewable capacity addition in FY21 to 7.4 GW from 8.7 GW in FY20, ICRA expects an improved performance in FY22.
In a release, the credit rating agency said that while performance in FY21 was subdued by execution headwinds due to COVID-19, the optimism in FY22 stems from a strong project pipeline of around 38 GW.
“More than 20 GW RE projects are under the tendering phase from various nodal agencies, providing visibility for capacity addition over the medium-term,” ICRA said in a release.
Tariffs to remain competitive
Despite the rise in tariff, solar power tariffs are expected to remain below Rs.3.0 per kwh 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, the execution challenges persist for the under-construction projects with respect to land acquisition and evacuation infrastructure, especially in the wind power segment.
In this context, the government has approved extension in commissioning timeline by 2.5 months, considering the second wave of Covid-19. Also, the Government has extended the waiver on inter-state transmission charges for wind and solar power projects commissioned till June 2025 from June 2023 earlier.
Domestic solar equipment
The demand outlook for the domestic solar OEMs remains favourable, with the strong policy support through imposition of BCD on imported cells and modules and the notification of the production-linked incentive (PLI) scheme along witha strong order pipeline aggregating about 35-40 GW over the next three to five-year period from various schemes requiring the use of domestic modules. Also, the delays in inclusion of the overseas suppliers in the Approved List of Models and Manufacturers (ALMM) could support the demand for domestic module OEMs in the near term, ICRA said.
Constrained credit
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 Rs. 118.4 billion as of April 2021, declining marginally from Rs. 122.7 billion as of January 2021, as per the data from the PRAAPTI portal.
Nonetheless, 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.
Stable outlook
Overall, ICRA’s outlook for the RE sector remains Stable, driven by factors such as continued policy support from the Government of India, large growth potential, the presence of creditworthy central nodal agencies as intermediary procurers and tariff competitiveness.
