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 Climate Change

Energy
Published on: Jan. 12, 2022, 1:58 p.m.
Renewables are on course: ICRA
  • Favourable policy support, superior tariff competitiveness, large untapped potential

By Business India Editorial

The strong pipeline of 55 GW clean energy projects is slated to augment the country’s renewable energy capacity to 16 GW in the next financial year, says rating agency Investment Information and Credit Rating Agency (ICRA).

“The outlook for the capacity addition in the Renewable Energy (RE) sector remains strong with a large project pipeline of over 55 GW and the highly competitive tariffs offered by these projects,” ICRA said in a statement on Monday.

It expects RE capacity addition to increase from 7.4 GW reported in FY’2021 to 12.5 GW in FY’2022 and further to 16 GW in FY’2023.

The commitment to climate change goals announced at the recent COP26 summit, including increasing the non-fossil power capacity to 500 GW and meeting 50 percent of energy requirement from renewable sources by 2030, strengthens the investment prospects in the renewable energy sector.

The capacity addition witnessed a strong recovery in the first eight months of FY’2022 (April to November 2021) with 8.2 GW added against 3.4 GW added in the the year-ago period.

Girishkumar Kadam, Senior Vice President & Co-Group Head – Corporate Ratings at ICRA, said the backlog of the projects awarded by the central nodal agencies and state distribution utilities remains large with under-development solar, wind and hybrid capacities of more than 55 GW.

“ICRA expects the RE capacity addition to increase from 7.4 GW reported in FY2021 to 12.5 GW in FY2022 and further to 16 GW in FY2023.” This is also supported by the progress shown by the Solar Energy Corporation of India (SECI) in signing of power sale agreements and power purchase agreements in the last six months. Within the RE capacity, the addition would be driven by the solar segment followed by the wind and hybrid segments, he said.

The downside risks for renewable energy sector in the near term emanate from the execution headwinds and supply chain challenges for procuring modules and wind turbine generators. ICRA noted that the average price of imported solar PV modules (Mono PERC) has increased by over 35 percent over the past 12 months, putting upward pressure on capital costs for solar power projects. Notwithstanding the same and the recent hike in GST (Goods and Services Tax) rate for solar power equipment, the solar bid tariffs continue to remain highly competitive as seen from the quoted bid tariff of Rs 2.17 per unit in December 2021, ICRA says.

The ability of the developers to secure modules within their budgeted costs and cost of debt funding at less than 8.5 percent remains important to make these projects viable.On the other hand, the wind segment continues to witness subdued capacity addition owing to execution headwinds, financing challenges for few developers and weak financial profile of some of the OEMs (Original Equipment Manufacturers) leading to supply side constraints, ICRA said.

Vikram V, Vice President & Sector Head – Corporate Ratings at ICRA, said that the investment requirement for achieving the non-fossil capacity target of 500 GW by FY2030 remains close to $300 billion. “This apart, investments would be required in augmenting the transmission infrastructure to integrate the renewable power with the electricity grid as well as investments to create storage infrastructure.”

ICRA expects the investments towards transmission infrastructure and storage capabilities to be about $150-200 billion over the next eight years, taking the overall investment requirement to $450-500 billion.

The availability of adequate funding avenues at cost competitive rates remains critical to achieve these capacity targets, he said. ICRA’s outlook for renewable energy sector remains stable driven by the favourable policy support, superior tariff competitiveness, large untapped potential and the presence of strong intermediate procurers like SECI.


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