Credit Quality Of Large Indian Renewable Players Intact, Says Moody’s

Moody’s Investor Service, the global credit ratings firm, has been reported to have declared that the credit quality of Indian renewable energy firms remains intact, post the end of the 2019 and 2019 financial years. Or till the period ending March 2020. The firm’s report has included 5 of the largest rated renewable firms in its ambit. Notable exceptions like Tata Power and large state owned firms like NTPC in any case will pass muster.

This was despite 15-20 per cent of wind and solar power projects underperforming during 2019-20, according to the report. Portfolio diversification, besides growth of 20 percent over the past five years ha ensured that these firms survive to look at the larger opportunities that will come up now.

Abhishek Tyagi, a Moody’s Vice President and Senior Analyst has been quoted as saying that “About 15-20 per cent of Indian wind and solar projects did not meet capacity utilisation targets in fiscal years 2019 and 2020 because of wind generation curtailments and lower irradiance for solar projects, which were responsible for 56 per cent and 68 per cent of the underperformance respectively,”. As a result, rated renewable energy companies’ EBITDA declined 2-5.6 per cent in fiscal 2020, said the report.

The Moody’s report has been based on an analysis of 176 projects totaling 11,462MW across five rated companies — Greenko Energy Holdings, ReNew Power Private Limited, Adani Renewable Energy, Azure Power Energy Ltd, and Azure Power Solar Energy Private Limited. Interestingly , three of these 5 firms have been in the news in just the past few weeks for fund raising from foreign partners, be it Renew’s SPAC listing, Adani’s deal with TOTAL, or Orix investing into Greenko.

Interestingly, the report stops at the period ending March 2020, just when the impact of the Coronavirus pandemic would have started. As we are aware, the pandemic has done more to make stronger firms stronger, while culling weaker firms, than almost anything else.

And it remains one of the less understood and researched outcomes of the year long disruption. Especially the first six to nine months. In India, we have seen it reflected in the bidding for renewable projects, where smaller firms have all but bowed out in recent months, and the ongoing liquidity crunch that continues as discom dues refuse to go down to the 60 dpd(day past due) that should be the norm. 180-270 days has become the new norm, hurting all players, especially smaller players.

Thus, that effectively means that the larger renewable energy firms, with powerful sponsors will still get to participate in the far larger opportunities that will open up in this decade, a key feature of renewable energy growth, which would be the presence and opportunity for smaller firms to jump in, might not be as strong in the next 10 years.

Moody’s has also flagged the presence of powerful sponsors as one positive that will ensure these firms continue to do better than one would expect normally, considering the credit challenges posed by the power sector in India.