Solar Companies Expect Easier Financing For Projects

Moody’s upgrade of India to a solid investment grade level is a positive move in the renewable energy sector but regulatory hurdles could be a challenge.

India’s massive effort towards renewable energy projects will gain from easier finance for investments following the upgrade of the country’s sovereign rating by Moody’s, according to the industry leaders. However, the good news may be overshadowed by regulatory woes stifling the sector.

Renewable energy sector is one of the fastest growing industries in India with strong government support and increasing attractive economies. Sumant Sinha, chairman and CEO of ReNew Power said, “Moody’s upgrade of India to a solid investment grade level is a positive and significant move. This will especially be beneficial for the renewable energy sector where sectoral lending options for domestic financial institutions and banks are limited and interest costs are an important part of the project cost.”

India has become the dominant market in renewable energy for multinationals such as Sembcorp and they have been showing huge interest in this sector by increasing investments over the past year. Vipul Tuli, CEO & country head of Sembcorp India said, “The upgrade reflects the growing impact of India’s economic and institutional reforms. This should have dual benefits for industry: first, a lower cost of capital will make Indian industry more competitive. Second, global endorsement may encourage the government to continue its bold reforms, especially in areas like power.”

In a bid to expand its presence in the country, Sembcorp acquired 100 percent stake in its renewable energy business Sembcorp Green Infra in August this year.  On November 17, US-based Moody’s Investor Services upgraded India’s sovereign credit rating by a notch to Baa2 with a stable outlook citing improved growth prospects driven by economic and institutional reforms. Moody’s upgrade comes as welcome move and expected to help reduce the borrowing cost for Indian companies and improve global investors’ outlook towards India.

Regulatory obstacles persist

With the Indian government’s increasing emphasis on renewable energy, the industry remains positive of the potential of the sector. However, it is also cautious of various policy hurdles, especially relating to renegotiation of power purchase agreements (PPAs), among other things.

Kameswara Rao, leader-energy, utilities and mining at PwC India said India’s credit rating is a “big positive” for the renewable energy sector, however, “regulatory and commercial challenges may overshadow this development.” Rao further said, “The uptick in renewable energy M&A deals is a clear sign of how difficult it has become to pursue greenfield projects. Investors are paying a premium to overcome this regulatory uncertainty.”

Despite the challenges investors are optimistic on the sector but at the same time maintain that government should be able to deliver this positive development on the ground by ensuring the sustainability of the energy mix in India.

Source: ET