Renewable Energy Investments can Surge 35% Through FY23 in India: CRISIL

Whetted global investor interest and enabling regulations can fuel a 35 percent growth in renewable energy investments in India through FY 2023.

A new CRISIL analysis has estimated that by stimulating global investor interest and enabling regulations, India can fuel the addition of as much as 35 GW of renewable energy (solar and wind power) capacity, involving Rs 1.5 lakh crore of investments, in the three years through fiscal 2023. Which would be a 35 percent growth over the Rs 1.1 lakh crore invested in the past three fiscals. The key of  course being the ‘will’ to take advantage of such a favourable global environment. As we have seen in recent months, in India, that is easier said than done.

A push towards clean energy is driving the global investor interest in the Indian renewables sector — as reflected in project tenders getting oversubscribed amid strong participation by global investors.

Hetal Gandhi, Director, CRISIL Research said “global investments have risen from around 15 percent of total capital investment in fiscal 2015-18 to around 50 percent of total investments in fiscal 2018-20. Going forward, global investments and internal accruals can generate around half of the Rs 1.5 lakh crore investments required.”

The report highlighted that the continued investor interest also builds on sustained enabling regulations, visible through the removal of tariff caps, consistent regulatory policies, and rising renewable energy targets.

Even during the COVID-19 pandemic, the ‘must-run’ status of projects had ensured continuous power off-take despite weak demand. Further, enablers such as extensions to under-construction projects helped developers deal with mobility constraints, supply hurdles and labour shortages.

Ankit Hakhu, Director, CRISIL Ratings, said “A sagging economy and a weak financial sector may pose challenges to fund the credit requirement for this growth. However, with a growing scale, the sector will churn out around 18 GW of fresh stabilised portfolio with top developers over the next three years that are amenable to refinancing. That means an aggregate debt capital of Rs 70,000 crore can be freed up to fund greenfield capacities.”

What supports this refinancing is a positive credit bias due to improving confidence in the performance of solar, which constitutes over three-fourths of the target pool.

CRISIL’s recent study on generation across 75 solar projects (with a track record of more than three years) indicates that ~80 percent of the times, the performance was better than P905 estimation. Lower generation for the rest was largely due to sporadic and curable operation and maintenance issues rather than module degradation, implying greater confidence in the performance of modules.

Risks related to delayed payments from state discoms are better managed by leading developers through liquidity buffers. Their project diversity also reduces exposure to a single site or counterparty related risks.

Platforms such as infrastructure investment trusts or InvITs, through their superior governance mechanism and beneficial tax structures, also offer avenues to enable fresh investments from global funds that are scouting for green investments. This, too, can free up developers’ equity capital for growth.

CRISIL believes continued investor thrust and an enabling regulation may double the capacity-addition run-rate from the 6-8 GW projects set up annually in the past 3 fiscals.