Long-term demand outlook for renewable energy is strong aided by favourable policy support from the central government and the state governments as well as an improving tariff competitiveness of wind and solar power, said a note from rating agency Icra.
“The improving cost competitiveness for renewable energy players has been driven mainly by competitive bidding process followed as well as a significant fall in photovoltaics (PV) module price levels over the last three year period for solar players,” the note said.
Icra added that given the strong pipeline of projects awarded in the last 12-month period, it expects solar capacity addition of 7-7.5 GW in FY2018, which is likely to be higher than the wind energy capacity addition.
In case of the wind energy segment, the capacity addition in the near term will be critically dependent upon the finalization of bidding plans by distribution utilities and the ministry of new & renewable energy (MNRE).
The sector however, continues to face regulatory challenges related to RPO (renewable purchase obligations) norms and continuing delays in payments from distribution utilities.
However, the implementation of the Ujwal Discom Assurance Yojana (UDAY) scheme has meant some easing in release of payments in a few states in recent months.
This apart, while falling tariffs improve demand outlook, they also affect the cost competitiveness of pre-existing renewable energy projects as well as the project economics of new projects. The viability for the winning bidders from the credit perspective would depend upon availability of long-tenure debt at cost-competitive rates, plant load factor levels and their ability to meet the budgeted costs.
A fundamental improvement in the financial position of the distribution utilities remains important in the long run, which is dependent upon their ability to curtail distribution loss levels in line with targets and tariff adequacy, Icra added.