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Indian Power Sector Gets Stable Outlook For Next 12-18 Months: Moody & ICRA

As the sector gets positive outlook with the improving discoms finances, bringing down the off-take risks, there is a word of caution for the Independent Power Producers

Indian power sector gets a stable outlook from rating agency Moody and ICRA for the next 12-18 months on the back of stable industry conditions and government policy initiatives like UDAY which will likely lead to improvements in the financial position of state-owned electricity distribution companies.

"India's state-owned power distribution companies will demonstrate weak to moderate financial profiles," says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

"Nevertheless, we do not expect the emergence of material off-taker risk over the next 12-18 months. Consequently, India's independent power producers should maintain credit metrics consistent with their current credit quality."

As the sector gets positive outlook with the improving discoms finances, bringing down the off-take risks, there is a word of caution for the Independent Power Producers (IPP).

The thermal IPPs will see costs rise for power generation, because of capital expenditure requirements to comply with the tightened emission control norms required by the Ministry of Environment & Forests, and also to ensure the operating flexibility to accommodate the increasing share of renewable energy.

“Timely approval of pass-through for such increases in cost will be critical for thermal IPPs with long term power purchase agreements. While the stressed thermal assets remain significant (~60 GW), due to factors such as tariff non-viability, lack of long term power purchase agreements, uncertainty on domestic gas availability and cost overruns, any further incremental stress should be limited in the conventional power sector,” according to the consultancy.

Renewable sector is likely to remain positive with overall increasing capacity addition aided by tariff competitiveness and a supportive regulatory framework and strong policy support.

However, while the medium to long-term outlook for renewable energy is positive, in the near term, capacity additions in the wind energy sector will likely be adversely affected, due to the transition in the tariff regime to a bid-based from a feed-in-based framework, mentions Sabyasachi Majumdar, Senior Vice President, ICRA.

In addition, upward pressure on the module price level, aggressive bidding and the possible risk of antidumping duties being imposed could impact fresh bidding for solar projects.




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