Stable outlook for Indian power sector – Moody’s

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Moody’s and ICRA have rated India’s power sector Baa2, which means it is stable. 

The country will see a change in its energy mix, says the investor service, as more renewable capacity is added in response to its commitments under the Paris Agreement on climate change.

The growth in renewables will also put pressure on conventional power producers. The power producers rated by Moody’s are protected by availability-based power purchase agreements (PPAs).

According to Moody’s, under India’s Ujwal discom Assuurance Yojana (UDAY), a scheme for Discoms (distribution companies), the financial conditions of these companies will gradually improve, thus alleviating the off-taker’s risk – a key negative factor for the credit quality of power producers.

Abhishek Tyagi, Moody’s vice president and senior analyst says that India’s state-owned power distribution companies will demonstrate weak to moderate financial profiles. Nevertheless, there is no expected off-taker’s risk over the next 12 to 18 months.

India’s independent power producers (IPPs) will maintain credit metrics that are consistent with their current credit quality. Tyagi adds that greater funding diversity will help companies to expand capacities and add renewables to them, although he states that corporate-type debt funding will remain dominant for Indian power companies.

Sabyasachi Majumdar, ICRA senior vice president further says that through improved tariff competitiveness and a supporting regulatory framework with strong policy, there will be a rise in India’s share of renewable energy, particularly in solar and wind generated electricity.

According to ICRA, the medium- to long-term outlook for renewable energy is positive, but the recent transition in the tariff regime, from a feed-in based system to an auction, will affect capacity additions in the wind sector. The new auctions for solar projects will also be affected by module price level pressures, says Moody’s, in addition to aggressive bidding and a risk of anti-dumping duties.

Furthermore, the tightened emission control norms from the Ministry of Environment and Forests are expected to result in cost increases for power generation from thermal power IPPs, due to capex requirements to comply. One of the reasons for the cost rise, says ICRA is to accommodate renewable energy.