Solar capacity addition estimated at about 5.5 GW in FY21, a decline of 15% yoy amid COVID-19 pandemic: ICRA

Timely resolution of pending tariff issue in Andhra Pradesh remains critical. Also, timely implementation of liquidity relief scheme for state owned discoms announced in May 2020 remains to be seen.

Jul 07, 2020 05:07 IST India Infoline News Service

The domestic solar capacity addition in FY2019-20 has remained lower by about 15% than ICRA’s previous estimate (7-7.5GW), 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 FY 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. This has added to the woes of the sector which 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.

Girishkumar Kadam, Sector Head & Vice President, ICRA Ltd says, “The solar capacity addition during FY 2020-21 is expected to come down further by 15% to about 5.5 GW given the execution headwinds amid lockdown restrictions post COVID pandemic. 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 H2 of the current fiscal. Nonetheless, 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 2-year period.”

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.

However, in the current scenario, says the ICRA note, with the dip in demand post lockdown due to COVID 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. Receivable cycles from the states of 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 in state of Andhra Pradesh remains extremely crucial for the renewable energy sector” says Manasa Gopidi, Assistant Vice President, ICRA Ltd.

Further, the recently notified liquidity relief scheme in May 2020 for the state-owned distribution utilities has been a positive short-term measure which would benefit the IPPs impacted by the long delays in receiving payments from the discoms. However, there has been limited progress so far and thus, timely implementation for this scheme remains important.

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