Capacity addition in the renewable energy (RE) sector is expected to remain subdued at about 8GW in FY21 given the execution challenges, disruption in supply chain and labour availability issues amid covid outbreak, according to a report by credit ratings agency Icra.
The given challenges have added to the woes of the sector which continues to remain plagued by issues such as delays in land acquisition and receipt of evacuation approvals, regulatory delays in tariff adoption and obtaining financial closure, the report said.
“Nonetheless, the overall medium to long term investment outlook for the renewable energy sector remains strong supported by highly competitive tariffs, policy support and new schemes such as peak supply, round-the clock supply and RE plus thermal blending, which mitigates the risk of intermittent RE supply to some extent."
The renewable energy-based capacity is likely to reach 120-125 GW by December 2022, with the solar capacity constituting 50% of the overall capacity followed by 38% from wind power segment and the balance from other sources, according to estimates made by the agency.
“While this is lower than the capacity target of 175 GW set by the Government of India, the incremental capacity addition is estimated to be healthy at 33-38 GW with investment outlay of more than ₹2 lakh crore over the next two and half years," Sabyasachi Majumdar, Group Head & Senior Vice President - Corporate ratings, ICRA, said.
“ICRA expects this to be supported by a large pipeline of projects awarded by central nodal agencies and state distribution utilities (discoms) and likely improvement in execution timelines. Within the renewable segment, the utility scale solar segment is expected to be very close to the 60 GW capacity target set by the government, though there is likely to be a shortfall in the rooftop solar and the wind power segments," Majumdar added.
Renewable power generators have been facing significant delays in receiving payments, especially from discoms in Andhra Pradesh, Rajasthan, Tamil Nadu and Telangana. The discoms’ finances have been further constrained by the adverse impact of the lockdown imposed to control the covid-19 pandemic.
“On the positive side, the discoms in states like Andhra Pradesh and Telangana have now started clearing past dues to the renewable IPPs, using the proceeds from the government’s ₹90,000 crore liquidity support scheme," Girishkumar Kadam, Sector Head & Vice President - Corporate ratings, ICRA, said in the note. “While this is a positive short-term measure providing liquidity relief to the affected generators, a sustainable improvement in discoms finances remains crucial for future investments in the RE sector, which is linked to improvement in operating efficiency of the discoms and aligning the tariffs in line with the cost of supply for the discoms by the respective state electricity regulators. This apart, a favourable resolution of the tariff issue for wind and solar power projects in Andhra Pradesh remains important for sustaining investments in the RE sector."