RE Capacity Addition to Grow to 11GW in FY22, Predicts ICRA

While renewable energy capacity addition reduced by 1.3 GW last year due to coronavirus-induced disruptions, ICRA expects the capacity addition to improve to 10.5-11 GW in FY22, led by a strong project pipeline of approximately 38 GW.

Additionally, more than 20 GW RE projects are under the tendering phase from various nodal agencies, providing visibility for capacity addition over the medium-term, said the agency.

Set up in 1991, ICRA Limited is an Indian independent and professional investment information and credit rating agency.

Mr. Girishkumar Kadam, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA Limited, said, “The RE sector is expected to witness investments of Rs. 3.5 trillion over the next four years, increasing the share of RE capacity to 34% of the overall installed capacity by March 2025 from 25% as of March 2021 led by the solar power segment. However, the delays in signing of PPAs/PSAs as observed in the past and cancellation of bids owing to expectations of a reduction in tariff rates, remains a key challenge.”

“Nonetheless, given the expected rise in solar bid tariffs in the upcoming auctions amid the rise in module prices and imposition of basic customs duty (BCD) on imported solar PV cells & modules from April 2022, progress is expected in signing of PPAs/PSAs for the earlier awarded tenders by the central intermediate procurers,” he added.

Despite the rise in tariff, the solar power tariffs are expected to remain below Rs. 3.0 per unit and cost competitive, against the marginal cost of generation from thermal sources in the bottom 25% of the merit order dispatch. On the other hand, the execution challenges persist for the under-construction projects with respect to land acquisition and evacuation infrastructure, especially in the wind power segment.

In this context, centre has approved extension in commissioning timeline by 2.5 months, considering the second wave of Covid-19. Also, the government has extended the waiver on inter-state transmission charges for wind and solar power projects commissioned till June 2025 from June 2023 earlier.

Further, the demand outlook for the domestic solar OEMs remains favourable, with the strong policy support through imposition of BCD on imported cells and modules and the notification of the production-linked incentive (PLI) scheme along with a strong order pipeline aggregating about 35-40 GW over the next three to five-year period from various schemes requiring the use of domestic modules. Also, the delays in inclusion of the overseas suppliers in the Approved List of Models and Manufacturers (ALMM) could support the demand for domestic module OEMs in the near term.

This apart, the credit profile of operational RE projects remains constrained by the exposure to discoms in states such as Andhra Pradesh, Telangana and Tamil Nadu, with large payment overdues. The overall dues from discoms to RE IPPs remained high at Rs. 118.4 billion as of April 2021, declining marginally from Rs. 122.7 billion as of January 2021, as per the data from the PRAAPTI portal.

Nonetheless, the credit profile of ICRA-rated RE IPPs is supported by the presence of liquidity buffer in the form of debt service reserve or working capital and relatively strong sponsor profile, says the agency. Overall, ICRA’s outlook for the RE sector remains stable, driven by factors such as “continued policy support from the government, large growth potential, the presence of creditworthy central nodal agencies as intermediary procurers and tariff competitiveness.”