Solar to contribute the most to India's capacity expansion in 2020: analysts

But concerns around land and transmission connectivity could disappoint expectations.

Solar is expected to be the largest contributor towards India’s capacity expansion in FY2020, amongst all energy sources, analysts from India-Ratings (Ind-Ra) said.

No new capacity was added in January 2019. Even for April-January 2019, capacity addition was down 52.0% YoY.

With the total coal-based capacity at 197.5GW, India remains dependent on coal-based power generation. Whilst capacity addition in other sectors remained weak, renewable capacity addition was strong at 11.2GW, up 18% during the 12 months ended December 2018.

India Ratings associate director for infrastructure & project finance Vishal Kotecha noted that ratings of solar projects could inch up, especially for projects with strong counterparties, on timely construction completion and demonstration of stable operations.

“Breakthrough in technology can bring the solar tariffs further down, but concerns around land and transmission connectivity may lead to lower-than-targeted capacity additions,” Kotecha said.

Meanwhile, wind could get hit by 5% underperformance from P90 level on a portfolio level in FY2019, but the same is adequately covered by cushions in debt servicing, reserves and other liquidity mechanisms in its rated projects.

“Geographical and counterparty diversification provides stability to the project cash flows, given the volatility in generations and erratic payment from off-takers,” Kotecha added.

Thermal plants dependent on availability-based payments will remain at risk of coal availability, given the sticky inventory level of about 10 days across all major plants in the country, Ind-Ra said.

According to Kotecha, plant load factors (PLF) are expected to improve marginally, backed by a likely 7% growth in energy demand in the near-to-medium term. “The sector may provide reasonable merger and acquisition opportunities in the near future, as many of them are available at a discount in the resolution/bankruptcy market,” he said.

Ind-Ra expects interstate transmission projects in FY2020 to be backed by demonstrated available levels in the past, to claim full revenue as per transmission services agreement.

“However, some underperformance is seen in payment realisation from Power Grid Corporation of India Limited in H1 FY2019, and realisation below 95% for the whole of FY19 may have some negative rating implications if improvement is not seen for a prolonged time period,” Kotecha concluded.