Energetica India - June 2020

WIND POWER Indian Wind Energy Sector Outlook Negative outlook on Wind Energy sector, amid several execution headwinds & concerns on the financial health of state owned distribution utilities The outlook for the wind power sector for FY 2021 is nega- tive, given the several headwinds facing the sector because of the long delays in making payments by the state distribu- tion utilities in some of the states and execution challenges for the projects bid out over the past two years. The execution challenges have remained in completion of land acquisition & securing transmission connectivity for many of the projects and the same has further been accentuated post COVID pan- demic outbreak resulting into likely delays by 4-6 months for under-construction projects, given the ongoing lockdown re- strictions & constraints in labour availability. With continued significant payment delays from state owned distribution utilities in few states, coupled with tariff renegoti- ation attempts being made by the discoms in state of Andhra Pradesh in last fiscal, the investor sentiments remain adversely impacted in the sector. This in turn was reflected from slow - down in the tendering activity of wind power projects by 67% to 2.3 GW in CY2019 from 6.9 GW in CY2018, with many of the bids remaining under subscribed.Along with the execution delays, overall tightness in financing environment & regulatory delays in PPA tariff adoption has too affected the financial clo - sure of the bid-out projects. As a result, the capacity addition in FY 2019-20 continued to remain subdued at 2 GW, although with a growth of 25% on y.o.y basis on a lower base in the previous fiscal. The capacity addition during FY 2018-19 & FY 2017-18 remained the worst affected, i.e. at 1.58 GW and 1.76 GW respectively also due to transition from feed-in tariff to bid tariff route in the sector for award of the projects to the develop- ers, post auction rote initiated by MNRE for bid tariff discovery for wind energy in February 2017.The capacity addition in cur- rent FY is also likely to remain subdued i.e. at about 2-2.5 GW, given the likely execution delays post COVID outbreak. Given that the backlog of wind energy projects under execu- tion remain quite significant at about 9 GW, there is a strong upside in capacity addition over the medium term till FY2022 / FY 2023, provided execution timelines are met.Also, the long- term prospects for the sector outlook remain favourable, aided by the strong policy focus on the renewable energy sector and the improvedtariff competitiveness of wind-based power. Fur- ther, timely resolution of tariff issue(which is currently pending at SERC & Divisional bench of AP High Court) for the affected projects in Andhra Pradesh is critical and remains key moni- torable. The tariff discovered in the recent wind power auctions contin- ue to remain at less than Rs. 3 per unit and highly competitive against the conventional energy sources. The viability of bid based wind energy projects thus would be critically dependent upon the ability of the developers to identify locations having the potential to generate power at annual PLF of 35% or high- er, besides the availability of cost competitive & long tenure debt. Whilefew such projects commissioned over the past 12-18-month period have been able to achieve annual PLF in the range of 33-38% which provides a comfort, sustainability of such PLF performance over a longer tenure still remains to be seen and remains extremely critical from viability perspective. W.r.t. the payment cycle for wind power projects from the distri- bution utilities, there is a mixed pattern. While the projects hav- ing central nodal agencies and discoms in states such as Gu- jarat as off-takers are receiving payments in a timely manner, the payments from discoms in most of the other states continue to remain delayed. The payment cycle has witnessed a signif- icant deterioration for wind IPPs in Andhra Pradesh, following the attempts by the state government to renegotiate tariff for wind power projects in the state. While the Andhra Pradesh discoms have started releasing payments to some extent at the interim tariff of Rs. 2.43/ unit in January 2020 following the Girishkumar Kadam Vice President, Sector Head - Corporate Ratings, ICRA Limited energetica INDIA- June_2020 43