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Sun to shine on solar, wind power may lag: Icra

According to reports, solar capacity addition, at 7-7.5 megawatt (mw), is likely to exceed wind’s this fiscal even as experts have flagged risks such as not enough buyers and debt leverage in the renewables sector.

Credit rating agency Icra said on Tuesday that the share of the wind and solar capacity is estimated to be 35% and 55% respectively, out of the total 65 gigawatt (gw) capacity addition estimated during fiscals 2018 to 2022.

Sabyasachi Majumdar, senior vice-president and group head, Icra, said, “Even under a conservative assumption of overall renewable purchase obligation at 15% (comprising 10% non-solar and 5% solar) by fiscal 2022 on an all-India basis, the incremental cumulative renewable energy requirement for the period fiscals 2018 to 2022 is estimated at 65 gw, which is quite significant.”

Icra’s study – Indian Renewable Energy Sector – said, “In case of solar energy, the actual capacity addition in fiscal 2017 has remained lower than the target set by the government of India and the same has been due to the delays in tendering and the project award process seen in the states as well as execution delays to some extent. Nonetheless, the solar capacity addition increased by 83% in fiscal 2017 as compared to capacity addition seen in fiscal 2016. This has allowed the share of solar power capacity in the renewable energy mix to increase to 21.5% as on March 31, 2017, from 15.8% as on March 31, 2016. The wind-based capacity continues to occupy a dominant share in the renewable energy mix at 56.4% as on March 2017.”

With the increasing renewable energy production, there is also need for an increase in renewable purchase obligation. At the moment, the overall renewable purchase obligation compliance levels remain very low at less than 60% in states such as Assam, Bihar, Odisha, Telangana, Uttar Pradesh and West Bengal. The compliance level is in the range of 70%-85% in Chhattisgarh, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Rajasthan and Tamil Nadu.

A challenge for the sector is delay in payments from distribution companies, however, the situation seems to be easing out due to Ujwal Discom Assurance Yojana (Uday). But on the flip side is demand from distribution companies to renegotiate tariff, due to recent competitive bidding.

“Such renegotiation is unlikely given that there has been a precedence of the regulatory ruling in favour of the developers in such cases. Nonetheless, such RE projects may remain exposed to the risk of forced back-down by utilities, especially in the case of purchase power agreements wherein tariff is significantly higher than average power purchase cost of the respective state-owned distribution utilities,” Majumdar said.

The viability of the competitive bid-based tariffs for the winning developers in wind and solar power sectors would be critically dependent on capital costs, plant load factor, debt tenure and costs of funding. Further, the developers’ ability to complete land acquisition and secure connectivity with the transmission system remains crucial for commissioning the project within the stipulated timelines.

In another report by S&P, a global ratings agency, the analysts raised concerns that the rapid growth in India’s renewable energy industry has led companies to become highly leveraged and face operational risks.

Most renewable energy firms have almost doubled capacity annually for the past few years. “We believe high growth has resulted in elevated leverage for many renewable companies in India, a key factor weighing on the ratings,” the ratings company said.

According to S&P, the pace of cutting debt will depend on their growth strategies and financial policies.

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