Solar capacity addition in 2020-21 likely to be 15% lower at 5.5 GW: Report

Solar capacity addition in the current financial year is likely to be 15 per cent lower at 5.5 gigawatts (GW), mainly due to the Covid-19 pandemic that has impacted the supply chain as well as execution of projects, according to a report by rating agency ICRA.

The solar capacity addition in 2019-20 was also 15 per cent lower at 6.5 GW than its earlier forecast of around 7-7.5 GW.

"The domestic solar capacity addition in FY2020 has remained lower, mainly on account of the disruption in supply chain and execution disruption in Q4 FY2020 due to the Covid-19 pandemic.

"The solar capacity addition in 2020-21 is further expected to remain subdued given the continued execution challenges post lockdown restrictions since March 2020, which have resulted in disruption of supply chain as well as labour availability issues," the report said.

It noted that the restrictions and the lack of availability of labourers have added to the woes of the sector that continues to remain plagued by various execution-related issues such as delays in land acquisition, receipt of evacuation approvals, regulatory delays in tariff adoption, and obtaining financial closure in a tight-financing environment.

"The solar capacity addition during 2020-21 is expected to come down further by 15 per cent to about 5.5 GW given the execution headwinds amid lockdown restrictions post Covid pandemic," ICRA Sector Head and Vice President Girishkumar Kadam said.

He added that this also assumes the execution delays by about 4-5 months for many of the under-construction projects and expected normalcy in construction activity during the second half of the current financial year.

He, however, noted that the backlog of the awarded project pipeline continues to remain strong with more than 15 GW of aggregate project capacity, thus providing a healthy visibility on capacity addition over the next two years.

Further, the announced tender pipeline by Solar Energy Corporation of India (SECI) has been significant.

"Strong policy focus and an improved tariff competitiveness keep the solar sector prospects intact in the long run," the report said.

ICRA, however, noted that in the current scenario, with the dip in demand after the lockdown due to the Covid-19 pandemic, revenues and cash flows of the state-owned distribution utilities have been affected leading to increase in the counter-party credit risk for the sector.

The agency said receivable cycles from Andhra Pradesh, Telangana and Tamil Nadu remain severely stretched at 10-12 months impacting the overall liquidity position of developers.

"Further, timely resolution of tariff issue, which is still pending at SERC and divisional bench of high court in Andhra Pradesh, for the IPPs (independent power producers) in state of Andhra Pradesh remains crucial for the renewable energy sector," its Assistant Vice-President Manasa Gopidi said.

Further, the recently notified liquidity relief scheme of Rs 90,000 crore in May 2020 for the state-owned distribution utilities has been a positive short-term measure that would benefit the IPPs impacted by the long delays in receiving payments from the distribution companies.

"However, there has been limited progress so far and thus, timely implementation for this scheme remains important," it noted.