Despite policy support, green energy still faces regulatory issues: Icra

Falling costs improve demand, but they affect cost competitiveness of pre-existing projects

Even as policy support and improving cost competitiveness provide strong outlooks for renewable energy in India, the sector continues to face regulatory challenges and viability concerns over falling tariffs, rating agency Icra said in a report on Tuesday.

"The long-term demand outlook for renewable energy (RE) is strongly aided by favourable policy support from the Government of India and the state governments of key states; as well as an improving tariff competitiveness of wind and solar power," the report said. 

"On the flip side, the sector continues to face regulatory challenges related to renewable power obligations (RPO) norms and its compliance, continuing delays in payments from distribution utilities and risk of forced back down by the utilities in a few states," the report said. The report pointed out that delays in payments from state utilities remained significantly high, especially towards independent power producers (IPPs) from wind as seen in the case of Rajasthan, Tamil Nadu and Maharashtra. However, the report added, there has been an improvement in payments in the last six months.

The report also raised concerns over the long-term viability of certain RE projects in the current scenario of falling tariff rates. "While falling tariffs improve demand outlook, they also affect the cost competitiveness of pre-existing RE projects as well as the project economics of new projects. The viability for the winning bidders from the credit perspective would depend upon [the] availability of long tenure debt at [a] cost competitive rates, plant load factor (PLF) levels and their ability to meet the budgeted costs," informed the report. Icra officials, in a media call to discuss the report, added, "At a tariff of Rs 2.44 project returns will be in single digit. We have already started seeing a slow pace of bidding."

Sabyasachi Majumdar, senior vice-president & group head, Icra also pointed out this fall in tariffs is also impacting existing RE projects."The RE projects in few states are facing issues with tariff renegotiation requests by utilities in view of the falling wind and solar tariffs under competitive bidding. However, such renegotiation is unlikely given that there has been a precedence of [the] regulatory ruling in favour of the developers in such cases," Majumdar said.