Indian renewable firms underperformed but credit quality intact: Moody's

Moody's said India's renewable energy sector grew by 20% in the last five years

Moody's Investors Service in its latest report said that close to 15-20 per cent of wind and solar power projects underperformed during 2019-20. However, with portfolio diversification, a lot of green energy companies will withstand the slowdown, it said. Moody's said India's renewable energy sector grew by 20 per cent in the last five years. 

"About 15-20 per cent of Indian wind and solar projects did not meet capacity utilisation targets in fiscal years 2019 and 2020 because of wind generation curtailments and lower irradiance for solar projects, which were responsible for 56 per cent and 68 per cent of the underperformance respectively,” says Abhishek Tyagi, a Moody’s Vice President and Senior Analyst. As a result, rated renewable energy companies’ EBITDA declined 2-5.6 per cent in fiscal 2020, said the report. 

For solar projects, lower irradiance was responsible for 68 per cent of generation underperformance. For wind projects, curtailment contributed to 56 per cent of underperformance and, of the total underperforming projects, 48 per cent were located in the state of Andhra Pradesh. 

The risk of curtailment is more pronounced in some states either because of delays to the building of linked transmission lines or some stateowned distribution companies not fully complying with the preferred dispatch status for renewable energy projects, the report said. 

Moody’s analysed 176 projects totaling 11,462MW across five rated companies — Greenko Energy Holdings, ReNew Power Private Limited, Adani Renewable Energy, Azure Power Energy Ltd, and Azure Power Solar Energy Private Limited. 

"Despite missed targets, India reported a healthy 20 per cent growth in renewable energy generation over the past five years. Specifically, wind and solar generation grew at a compound annual growth rate of 20 per cent in fiscal years 2015-20, increasing their share of electricity generation in India thanks to declining development costs, strong policy support and investor interest in the sector," the report said.  

Moody's noted that all companies it analysed have multiple projects and thus their credit quality benefits from portfolio diversification, which in turn reduces the impact of underperformance of individual projects. 

"However, significant underperformance at an individual project level can lead to liquidity difficulties and thus may require parental support to meet commitments, in some cases. The credit quality of rated renewable energy companies also benefits from their strong sponsors, which in most cases have strong financial profiles with the ability to provide capital if required and have a history of support in times of stress" Moody's said.