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CARE Ratings expects its ratings on grid connected solar players to remain stable on back of conducive policy framework, satisfactory operating levels and reducing gap in tariff compared with conventional sources.
In its latest report, CARE said over the last few years, overall capital cost for grid scale power projects based on photovoltaic (PV) technology has reduced from Rs.15 crore per MW ($2.5 million) to Rs.7-8 crore per MW ($1.2-1.3 million) and similar reduction has been witnessed in tariff rates.
“The track record of utility scale solar projects in the country still remains short (of about 36 months), and going forward, the ability of the projects to maintain the operating performance remains critical for achieving the expected debt coverage indicators,” said the report.
CARE Ratings said by 2017-2018 solar tariffs will converge with grid tariffs leading to proliferation of solar-based capacity across various states.
It however also highlighted counterparty risks which would remain a key rating challenge. The report said that to take advantage of the lower interest rates, many projects relied upon medium-term funding arrangement in the form of buyers credit denominated in US dollars. However, the rupee-dollar exchange rates moved adversely.
“As this exposure was not fully hedged, it is likely to adversely impact the project returns. Furthermore, these projects would continue to be exposed to interest rate risk as about 70 per cent of project cost is funded with debt which has interest cost which is floating in nature. While majority of the projects achieved a Debt Service Coverage Ratio (DSCR) of more than 1.15 times in FY14, for few of the projects the DSCR was low (<1.15) due to lower generation and also due to forex loss on buyer’s credit,” said the report.
CARE underlined the need for continued regulatory certainty to maintain a stable rating. It said considering the relatively high tariff levels needed for viability of solar projects, the regulatory framework and stable policies are key parameters for protecting the interest of various stakeholders.
“The policies under national solar mission, various states, land acquisition-related issues, allocation of funds to meet the VGF and implementation of renewable purchase obligations (RPO) remain crucial parameters.
