Renewable energy growth will challenge fossil fuel operators: Moody’s

New Delhi: A rising share of renewables in India’s power sector will pose a serious challenge to conventional power generators, said a report released on Monday by rating firm Moody’s Investors Service.

The report also said that achieving 175GW of renewable power by 2022—a government target—will be challenging.

The report, Power Sector - India: Growth in Renewable Energy Capacity Will Challenge Fossil Fuel Operators, said that a rising share of renewables in India’s generation mix over the next 5-7 years will create challenges for conventional power generators.

Moody’s expects India to register a power surplus over that period, thereby pressuring the utilization rates of thermal power generators.

“At the same time, implementation of the aggressive renewable energy capacities - which are planned to grow to 175GW by 2022 compared to the current 37GW - will be challenging, given counterparty risk issues and the need for stable policy initiatives to support long-term investments,” the report said.

“The most pronounced impact of a rising share of renewables in India’s energy mix will be on unregulated power companies. These companies are directly exposed to the market impact of environmental regulations—such as the clean energy tax—and do not receive the benefit of cost recovery from ratepayers,” said Abhishek Tyagi, vice president at Moody’s and senior analyst.

In June 2015, Prime Minister Narendra Modi increased India’s target for solar power by five times from 20,000 MW to 100,000 MW by year 2022.

In the run-up to the Paris Climate summit in December 2015, India announced the 175 renewables GW target as part its intended nationally determined contributions (INDCs) to combat climate change.

“India has taken steps to support investment in renewable energy, and further traction in policy reform is key for the sector’s ongoing development,” said Terry Fanous, Moody’s managing director for project and infrastructure finance ratings in Asia Pacific.

He noted that though domestic banks will continue to provide significant funding for renewable energy projects, greater funding diversity is needed.

“MDBs (multilateral development banks) have already been involved in supporting renewable energy projects in India, but the scale of India’s growth plan for the renewable energy industry will necessitate greater participation by MDBs to crowd in institutional capital,” Fanous added.

The report also pointed out that around 35% of the new generation capacity (7.1GW) added during the first 11 months of financial year 2015-16 was from renewables—a marked shift from previous compositions of new generation capacity which were heavily dominated by coal.