India Ratings maintains stable outlook on solar sector for FY2020-21

Contracted revenue, minimal volume risk and moderate-to-strong counterparties mitigate cash flow concerns in solar assets.

March 6, 2020 Uma Gupta

The agency, however, expects some slippages in construction timelines due to delays in the import of modules from China.

Image Credit: Engie

Fitch Group company India Ratings and Research (Ind-Ra) expects the ratings of solar projects to remain stable in FY21, given revenue generation in line with projections and limited exposure to weak counterparties. Contracted revenue, minimal volume risk and moderate-to-strong counterparties mitigate cash flow concerns in solar assets.

Construction completion of projects with strong counterparties will be positive for the project ratings, said the agency which last year noted “the profile analysis of distribution companies (discoms) as counterparties gaining prominence in revenue risk analysis.”

Ind-Ra, however, expects some slippages in construction timelines due to delays in the import of modules from China where coronavirus outbreak has disrupted industrial output, seriously jeopardizing PV project execution schedules in India.

[According to lobby group National Solar Energy Federation of India (NSEFI), around 4 GW of solar generation capacity in India is set to be affected due to delayed equipment deliveries from China as the virus continued to rage in China.]

Given the force majeure clause application by the Finance Ministry, the tariff is unlikely to be affected and Ind-Ra does not expect any significant cost overruns.

Negative for wind

Ind-Ra said uneven plant load factor performance, weak counterparties and a few weak operations and maintenance contractors are placing pressure on the ratings for wind. Counterparties’ financial stress and distribution companies’ higher dependence on an external source of funding to settle the mounting power purchase dues do not augur well for projects and elevates the counterparty risk.

A new reform framework in the offing for distribution companies is a watch event for energy infrastructure assets. Should the counterparties profile see a sharp shift due to the new policy action, the generators would be a beneficiary.

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