India’s Solar Outlook Revised to Stable, Wind Continues Negative Trend

India Ratings has maintained a negative outlook on India’s wind sector for 2HFY21, bur the solar sector outlook has been revised to stable from negative.

India Ratings and Research (Ind-Ra) has maintained a negative outlook on India’s energy and transport infrastructure for the second half of FY2021, stemming from a likely low demand, driven by low thermal plant load factor and subdued wind generations, and the resultant impact on coverage metrics. However, amidst all the negatives – the solar sector outlook has actually been revised to stable from negative.

The report added on the solar sector that the solar generation in 1Q FY21 was slightly lower (3 percent-4 percent) than that of 1QFY20. Seasonal variations to some extent depending on the monsoon duration in a year are not unusual for solar projects. Project and grid availability have been above 95 percent for most of the portfolio. Sporadic instances of grid issues because of overloading at the substations belonging to intrastate transmission systems and tracker underperformance have led to significant deviation in generation compared to estimates in few projects.

However, it didn’t have good reading for solar projects that are currently under construction. The outlook saw uncertainties compounding for these projects.

It added that given the multitude of developments such as COVID-19 related lockdowns, change in duties for solar panels and consequent difficulties in importing panels, constraints in mobilising labour for implementation, delays in the signing of power purchase agreements after bidding, delays in tariff adoption and changes in module prices, the economics of a project could be under significant stress compared to the scenario that developers envisaged at the time of bidding. Risks for under-construction projects have increased because of these uncertainties and could delay financial closure.

However, the number of acquisitions in renewable projects has kept the investor interest in the sector high, thus encouraging developers to bid for projects.

For the wind sector, the outlook has maintained a negative rating.

The report added that there was an unusual 15 percent yoy fall in power generation in 5MFY21, because of a fall in wind speed, despite a 6 percent increase in installed capacity. Historically, generation during April-August had a share of about 60 percent of the annual generation and by September, the share had been about 70 percent of the annual generation. Thus, the underperformance to date might have an impact on the annual generation in the range of 10 percent-12 percent, on all India basis.

Affected states that are likely to have a generation fall of 10 percent-15 percent yoy are Tamil Nadu, Karnataka, Maharashtra, Andhra Pradesh and Madhya Pradesh. Gujarat and Rajasthan are the least affected and the annual drop in the generation is not likely to be more than 5 percent. Debt service is not under risk for most investment-grade companies because of accumulated liquidity and debt service reserve. The liquidity indicator is above1.4x for 80 percent of the portfolio and the balanced portfolio has a ratio in the range of 1.15-1.25x, after considering the lower generation. Grid and machine availability remain stable.