Renewable energy market will see strong growth, Moody’s says

COIMBATORE: The renewable energy market in India (Baa3 positive) is likely to see strong growth over many years, as the country moves towards meeting its commitments under the Paris Agreement on climate change, Moody’s Investors Service has said.
"However, renewable energy projects face challenges related to the weak credit quality of offtakers, an evolving regulatory framework, as well as financing and execution risks," said Abhishek Tyagi, a Moody's vice-president and senior analyst.
“India's emission reduction commitments under the Paris Agreement will lead to a sharp rise in renewable energy capacity,” the agency said in its latest report.
“Specifically, the country aims at achieving 40% of cumulative installed capacity through non-fossil fuel sources by 2030 from the current 30%,” it said.
The country also plans to grow substantially its renewable energy capacity to 175GW by 2022 from the current 57GW. Such growth will be driven by the public and private sector. "However, the key offtakers for most renewable projects are state-owned distribution companies, and these firms typically demonstrate weak financial profiles," Tyagi said.
The evolving policy framework for renewables presents a risk for renewable projects, the agency said. “For example, adherence to Renewable Purchase Obligations has been limited, leading to lower demand for renewable energy,” it said. “Nevertheless, the Feed-in-Tariff and competitive bidding guidelines for wind and solar projects are well established and improve revenue visibility over the life of purchase power agreements,” Moody’s said.
“The large rise in renewable energy capacity will bring execution challenges, including land acquisition, establishing resource quality, grid connectivity and availability,” it said. “India will need to invest close to $150 billion to meet its 2022 renewable energy targets,” the agency said.
“Because domestic banks are constrained in their lending to renewable projects, foreign capital will play an important role,” it said. “However, foreign currency financing is constrained by the limited hedging products available to fully cover the rupee currency risk of purchase power agreements,” Moody’s said.