Renewable Companies Gradually Moving Towards More ‘Stable’ Category
In the scenario of record low tariffs, the renewable companies in India are moving towards a positive and stable growth track.
Despite majority project falling under low ratings, the companies are showing improvement and transiting towards a stable portfolio.
“Around 70-75 percent of our rate portfolio is under AAA category with companies projecting issues like payment delays, technology concerns and under implementation of the projects”, says Girishkumar Kadam, VP and Sector Head, Corporate Sector Ratings, ICRA.
However, he mentions that there is a growing migration towards more stable category, on the back of improving generation, improvement in the debt coverage ratios with low-cost refinancing, decline in the project risks and timely cash collections. Together these factors are aiding towards the improvement of the renewable companies’ profile and up-gradation. Going by the trend, the renewable companies have a fairly well-diversified asset portfolio today and are backed by strong promoter groups.
The report released by the company on renewable sector mentions that the long-term demand outlook for the sector is strong aided by favourable policy support from the Government and the improving tariff competitiveness of the wind and solar power, driven mainly by the competitive bidding process and significant fall in photovoltaics (PV) module price levels.
Given the strong pipeline of projects awarded in the last 12-month period, ICRA expects the solar capacity addition of 7-7.5 GW in FY2018, which is likely to be higher than the wind energy capacity addition. In the case of the wind energy segment, the capacity addition in the near term will be critically dependent upon the finalisation of bidding plans by distribution utilities and the Ministry of New & Renewable Energy (MNRE).
The sector, however, continues to face regulatory challenges related to Renewable Purchase Obligation (RPO) norms with continuing delays in payments from distribution utilities with the inherent risk of forced back down by them in a few states.
The experts also note that while the falling tariffs have brought improvement in the demand outlook for the sector, the cost competitiveness of the pre-existing and the new projects can come under radar.
The viability for the winning bidders from the credit perspective would depend on the availability of long tenure debt at cost competitive rates, plant load factor (PLF) levels and their ability to meet the budgeted costs. The two most important variables that contribute to the low tariffs are the falling prices of solar PV modules and the low financing costs. With the project IRR (Internal Rate of Return) falling to single digits, there has been a slowdown in the bidding process, as the investors show sign of cautions.
“The RE projects in few states are facing issues with tariff renegotiation requests by utilities. However, such renegotiation is unlikely given that there has been a precedence of a 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 (PPAs) wherein tariff is significantly higher than average power purchase cost of the respective state-owned distribution utilities”, Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA.
He notes that going forward, the time alignment of RPO and improvement in the financial positions of the utilities remains critical to moving in line with the 2020 target of 175 GW renewable capacity set up by the government.
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