ICRA Revises Outlook from Stable to Negative for RE Sector

On the back of delays in both payments from Discoms and execution of projects, credit rating agency ICRA has revised the year-end outlook for India’s renewable energy (RE) sector from ‘stable’ to ‘negative’.

According to the rating agency, country’s renewable energy sector is facing headwinds due to long pending payments by the state Discoms (power distribution companies), difficulties in land acquisition and timely financing for projects, delay in projects during last 2 years and securing transmission connectivity.

On the challenges front, ICRA is not expecting growth in the capacity addition in FY2020 and it will remain at about 8.5-9.0 GW similar to FY2019.

Commenting on the report, Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings at ICRA, said that “the headwinds related to payment delays, uncertainty over resolution of tariff issue for projects in Andhra Pradesh, as well as execution and financing related challenges for under-construction projects have impacted investor sentiments in the sector.”

Majumdar further added that “this is reflected from the slowdown in tendering of wind and solar PV projects by 37 per cent to 10.6 GW in 9 months CY2019 from 16.7 GW in the corresponding period of the previous year. Moreover, many of bids called by central nodal agencies remained under-subscribed.”

As per the ICRA report, the capacity addition in FY20 will be primarily driven by the solar power segment. However, compared to 5.6 percent in FY15, the share of renewable energy-based generation in the overall generation mix at pan India level is rising, as seen from an increase to 9.2 percent in FY2019.

On payment delays and implementation of LC, the rating agency said that “the payment timeline has witnessed significant deterioration for wind IPPs in Andhra Pradesh and Telangana, with delays of more than 12 months. While the provision of a letter of credit (LC) or advance payments has been made mandatory w.e.f. August 1, 2019, the implementation of the same has been mixed so far with many of the intra-state RE projects not receiving the LCs.”

It further stated that “moreover, this does not address the issues pertaining to recovery of old receivables. The IPPs with large exposure to the Discoms in Andhra Pradesh and Telangana and belonging to the promoter groups having relatively modest financial strength, remain vulnerable from debt servicing perspective.”