India Ratings downgrades solar outlook for FY2019-20

Revision in the outlook to ‘stable’—from ‘positive’—stems from resurfacing renegotiation fears and continued delay in payments from some of the offtakers.

September 18, 2019 Uma Gupta

Counterparty predictability is key to projects’ stable ratings, according to Ind-Ra.

Image Credit: Engie

India Ratings has revised the solar sector outlook to stable from positive for FY2019-20.

The ratings agency noted that the stable outlook emanates from likely in-line operational and financial performance of projects, coupled with availability of adequate liquidity despite delay in payments from select state distribution utilities (discoms).

There were 25% more downgrades than upgrades among renewable projects in Ind-Ra’s portfolio in 2019 (till mid August), mostly on account of delay in payments from the offtaker, it reported.

However, the agency expects timely payments from strong counterparties (Solar Energy Corporation of India, NTPC, etc.) and stable generation of renewable energy power in the upcoming months to favour the stable outlook.

Ind-Ra cited “Andhra Pradesh state’s efforts to negotiate renewable power tariffs and increasing receivables period from select state discoms on a negative side” as a key update since the release of its last outlook in February 2019.

On the positive side, it expected Ministry of Power’s efforts to enforce letter of credits as a payment security mechanism under PPAs to have a salutary effect on timely payments from offtakers over the long term.

A key potential disruptor to the sector can be the recent trend of linking PPAs with back-to-back power sale agreement with state discoms, stressing on the intermediary nature of SECI and NTPC Limited, Ind-Ra noted.

“Overall, positive and negative developments in the sector counterbalance each other, thereby resulting in a stable outlook,” it said, expecting majority of ratings in its renewable portfolio to remain Stable for the remainder of FY20 with headroom available to withstand moderate downturns in generation and payment delays.

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