Outlook stable for renewable energy sector on improved conditions for growth

The country's renewable energy sector, powered by the solar and wind sectors, have received a stable outlook for the financial year 2019. Rating agency India Ratings anticipates a favourable environment for the wind and solar energy sectors as bids are being driven by Central Government agencies and power purchase agreements (PPAs) are becoming favourable to developers in terms of addressing grid curtailment and termination issues.

The report brought out by Divya Charen C of the rating firm, says: “Development of guarantee funds by states/ bidders, incentives to local solar panel manufacturers and exploring wind-solar hybrid projects and offshore wind projects indicate a sustaining growth momentum in renewable power.” Few hurdles such as uncertainties in solar panel costs, unpredictable behaviour of distribution companies (discoms) and operational troubles from wind turbine manufacturers need to be addressed by renewables developers.

Ind-Ra believes avoidance of downtime of solar and wind plants is critical in ensuring the predicted internal rate of returns. There is a possibility of discoms resisting new renewable PPAs because of existing excess power tie-ups and PPA tie-ups with upcoming thermal plants.

The bond market favours renewables and transmission companies. Developers are looking for various avenues to raise funds for growth. The timeline between project commissioning and refinancing bank loans with bonds is decreasing as investors are getting tuned to the risks in projects and developers are looking to generate cash for growth.

Ind-Ra foresees adequate liquidity back-up and counter-party risks as the most critical factors for renewable projects. Change in grid management for scheduling increasing renewable energy and changes to the must-run status and financial health of discoms are the sector sensitivities. Electricity demand growth has stagnated at around 6 per cent due to slower manufacturing growth and advances in consumption efficiency for lighting, appliances, electronics and equipment. Growing supply of renewable energy generation, with no fuel or emissions costs, and continuing capital cost reduction further suppresses prices in short-term markets.

In the absence of long-term fixed-price PPAs, developers are financing new thermal power plants backed by short-term contracts to offset low market prices. These projects may be unable to refinance their construction loans in the absence of a reversal of current market conditions.


Source : https://www.thehindubusinessline.com/economy/outlook-stable-for-renewable-energy-sector-on-improved-conditions-for-growth/article22772986.ece

Smart Grid Bulletin July 2019

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