ICRA downgrades around 1.9 GW of wind and solar power projects

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NEW DELHI : In what may impact India’s emerging green economy, rating agency ICRA has downgraded around 1.9 gigawatts (GW) of wind and solar power projects in its rated portfolio and has also revised the rating outlook for some projects.

This comes in the backdrop of India’s clean energy sector going through a crisis. With record low solar and wind power tariffs, banks are wary of lending to developers as they suspect the viability of projects that have agreed to sell power at rock-bottom tariffs. There are other problems such as delay in payment by state-run power distribution companies that range from two months to 15 months and non-allocation of land-to-wind power projects, as well as transmission- and connectivity-related challenges.

“Given the headwinds faced by the wind and solar energy power segments coupled with a gradual deterioration in the liquidity profile of the IPPs due to payment delays from a few state distribution utilities (discoms), ICRA has revised the ratings / rating outlook of almost one-third of its rated portfolio,” ICRA said in a statement on Wednesday.

Discoms are the weakest link in the electricity value chain, plagued by low collection, increase in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments. This has resulted in discoms having poor payment records.

“As per a note by the rating agency, about 20% (1.9 GW) of the rated portfolio in wind and solar power segments in terms of installed capacity has been downgraded, while the rating outlook has been revised for another 10% of the portfolio,” the statement added.

Seized of the issue, finance minister Nirmala Sitharaman on Monday assured global investors about the sanctity of power purchase contracts in India. Also, power and new and renewable energy minister Raj Kumar Singh on Tuesday said state electricity distribution companies (discoms) remain a challenge.

“Off and on, in some states, in some discoms, there is stress,” Singh said, who has also discussed payment security at a two-day conference of state power ministers last week.

India is however confident of meeting the target of 450 GW of renewable energy by 2030. While 83,000 MW of clean energy capacity has already been set up, 29,000 MW is under construction. Also 30 GW is under bids.

“Near term headwinds for solar energy sector, given the regulatory uncertainty, payment delays from the utilities and tight financing environment,” the statement said.

This comes against the backdrop of controversial attempts by the Andhra Pradesh government to renegotiate clean energy tariffs with developers. Concerns about the sanctity of power purchase agreements (PPAs) have also been articulated by various global investors with states such as Uttar Pradesh looking for curtailing purchase of green energy.

“As per the data by Central Electricity Authority (CEA), payment dues to renewable players stood at ~ Rs. 97 billion as on July 31, 2019 with almost 67% of it being contributed by utilities in three states namely Andhra Pradesh, Tamil Nadu and Telangana. Such payment delays (in Andhra Pradesh and Telangana) along with uncertainty over resolution of tariff issue for projects (in Andhra Pradesh) and instances of grid curtailments have adversely affected the credit profile of the wind and solar power projects having PPAs with these state discoms,” Girishkumar Kadam, sector head and vice president, corporate ratings, ICRA Ltd said in the statement.

India’s emerging green economy is expected to require investments of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30. The National Democratic Alliance (NDA) government has been trying to attract investments in the backdrop of the Indian economy battling a severe demand slowdown and liquidity crunch that resulted in the growth rate slowing to 5% in the three months ended June.

Source: Live Mint