Energetica India nº91 July August 2020

RENEWABLE ENERGY 32 energetica INDIA- July-Aug_2020 ed bid tariff discovery to some extent. While module price behaviour has been declining the past period (although showed an upward trend in CY 2017 in between), the same remains a key vari- able which affects the project viability. This is also reflected from the fact that a 20% increase in the module price level is estimated to negatively affect the DSCR by 0.10 times from the base case DSCR level of 1.2-1.25 times. Further, debt coverage metrics also remain exposed to variation in INR-USD rate (in case of imported modules) and interest rate, be- sides the exposure to PLF variation risk due to climatic conditions. Moreover, the risk w.r.t. sourcing of solar PV modules for under-construction solar projects as well as procurement of raw materials for domestic solar module manufactur- ing OEMs, especially from China and consequent cost implications would be a monitorable, given the backdrop of increasing geo-political risks between India and China. For wind energy project, PLF level re - mains a critical monitorable, given the requirement of PLF well above 35% for many of the projects bid out with tariffs below Rs. 3/unit. The PLF expectation is also supported by MW class wind tur - bines with higher hub height & selection of location having rich wind energy po- tential. While few wind energy projects (based on bid tariff PPAs) which have been commissioned in last 1 year have demonstrated PLF levels within 34-36%, sustained track record of such PLF levels remains to be seen and remains critical from viability & financing perspective. Nonetheless, the capacity addition in the renewable energy sector is expect- ed to remain subdued at about 8.0 GW in FY2021 given the continued execution challenges amid Covid-19, because of disruption of supply chain as well as la- bour availability issues. This has added to the woes of the sector which contin- ues 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 in a tight financing environment over the last 15-18 month period. The renewable IPPs have also been facing significant delays in receiving payments, especially from discoms in the states of Andhra Pradesh, Rajas - than, 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. With likely energy demand decline at 5% during the cur - rent FY, the revenue gap for the discoms is estimated at Rs. 43,000 crore and this in turn is likely to increase counter- party credit risk for the renewable IPPs. The GoI’s announced liquidity support scheme in May 2020 for Rs. 900 billion for the discoms, in the form of loans against government receivables, from the Power Financial Corporation (PFC) and the Rural Electrification Corporation (REC) has been a short-term positive measure. On the positive front, the dis - coms in states like Andhra Pradesh and Telangana have now started clearing past dues to the renewable IPPs, using the proceeds from the liquidity support scheme. Nonetheless, the sustainable improvement in discoms’ finances re - mains crucial for future investments in the RE sector, which is linked to im- provement 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 regula- tors. This apart, a favourable resolution of the tariff issue for wind and solar pow- er projects in Andhra Pradesh remains important for sustaining investments in the RE sector.