Ratings for Solar to Remain Stable, Wind Revised to Negative: India Ratings

India Ratings has maintained a stable outlook for solar power projects for FY21 while revising the outlook on the wind sector to negative from stable.

India Ratings and Research (Ind-Ra) has maintained a stable outlook on the overall energy and infrastructure sector, including solar power projects for FY21 while revising the outlook on the wind sector to negative from stable.

“Contracted revenue, minimal volume risk and moderate-to-strong counterparties mitigate cash flow concerns in solar assets; while wind assets profile face headwinds such as resource volatility and weakening profile of counterparties and original equipment manufacturers, who are also operations and maintenance contractors,” Ind-Ra stated.

For solar, Ind-Ra expects the ratings of solar projects to remain stable in FY21, given revenue generation in line with projections and limited exposure to weak counterparties. Construction completion of projects with strong counterparties will be positive for the project ratings.

“However, there could be some slippages in construction timelines due to delays in the import of modules from China. Given the force majeure clause application, the tariff is unlikely to be affected and the agency does not expect any significant cost overruns,” it said.

For wind, the rating agency issued that uneven plant load factor performance, weak counterparties and a few weak operations and maintenance contractors are placing pressure on the ratings. Counterparties’ financial stress and distribution companies’ higher dependence on an external source of funding to settle the mounting power purchase dues do not augur well for projects and elevates the counterparty risk. A new reform framework in the offing for distribution companies is a watch event for energy infrastructure assets. Should the counterparties profile see a sharp shift due to the new policy action, the generators would be a beneficiary. 

For the transmission sector, the rating agency said that it expects a stable performance by interstate transmission projects in FY21, though there has been a minor elongation in receivables recently. “Tariff realisation dropping below 90 percent in any quarter is an event to be watched for. While the flood-related events in the north-eastern part necessitate refurbishment of the network, frequent episodes erode the liquidity in a project. The agency sees the construction risk as moderate for transmission projects,” it said.

The rating agency also stated that the ratings of thermal projects with power purchase agreements covering the majority of capacity continue to be stable. “That being said, there is an emerging risk as the projects are now compelled to upgrade the facilities to comply with the emission norms.”