“Negative outlook on energy infra for 2nd half of FY21”

Ind-Ra expects the effect of liquidity enhancement on discoms to be temporary and payables from discoms are likely to increase slightly by the end of 2020-21 year-on-year.

India Ratings and Research (Ind-Ra) has maintained a negative outlook on energy infrastructure for for second half of FY21, stemming from a likely low demand, driven by low thermal plant load factor and subdued wind generations, and the resultant impact on coverage metrics.

Ind-Ra expects the effect of liquidity enhancement on distribution companies (discoms) to be temporary and payables from discoms are likely to increase slightly by the end of 2020-21 year-on-year. Absent this, the receivable profile would have exacerbated the generators’ problems. “Policy actions such as the RBI’s COVID-19 moratorium and discom package play a critical role in beefing up liquidity for projects. That being said, the weak operating profiles of most discoms continue to be drag on the sector,” the research agency observed.

However, Ind-Ra has revised outlook of solar power sector from negative to stable. Solar generation in first quarter of FY21 was slightly lower (3 percent – 4 percent) than that of first quarter of FY20. Seasonal variations to some extent depending on the monsoon duration in a year are not unusual for solar projects. Project and grid availability have been above 95 percent for most of the portfolio.”

Sporadic instances of grid issues because of overloading at the substations belonging to intrastate transmission systems and tracker underperformance have led to significant deviation in generation compared to estimates in few projects, the agency said.

According to Ind-Ra, there are uncertainties compounding for under-construction solar projects. It said, “Given the multitude of developments such as COVID-19 related lockdowns, change in duties for solar panels and consequent difficulties in importing panels, constraints in mobilising labour for implementation, delays in signing of power purchase agreements after bidding, delays in tariff adoption and changes in module prices, the economics of a project could be under significant stress compared to the scenario that developers envisaged at the time of bidding. Risks for under construction projects have increased because of these uncertainties and could delay financial closure.”

However, the agency said, the number of acquisitions in renewable projects has kept the investor interest in the sector high, thus encouraging developers to bid for projects.

Ind-Ra has maintained negative outlook for wind power sector. It said, there was an unusual 15 percent y-o-y fall in power generation in first five months of FY21 because of a fall in wind speed, despite a 6 percent increase in installed capacity. Historically, generation during April-August had a share of about 60 percent of the annual generation and by September, the share had been about 70 percent of the annual generation. Thus, the underperformance till date might have an impact on annual generation in the range of 10 percent-12 percent, on all India basis.

It observed, affected states that are likely to have a generation fall of 10 percent-15 percent yoy are Tamil Nadu, Karnataka, Maharashtra, Andhra Pradesh and Madhya Pradesh. Gujarat and Rajasthan are the least affected and the annual drop in generation is not likely to be more than 5 percent.

About thermal power projects, it said, thermal projects with PPAs for a significant proportion of installed capacity continue to have revenue stability. It added, the general fall in demand had affected the plant load factor for projects and discom stress is elevated on thermal assets. Projects with untied capacity have revenue pressure due to low prices in merchant market (Rs 2.35-2.60/kWh during first five months of FY21). Coal availability is comfortable, given the fall in generation during this period, following the fall in energy demand caused by the lockdown, the agency said.

In case of power transmission projects sector, Ind-Ra expects the collection ratio of at least 90 percent in FY21, based on the increasing revenue realisation for interstate transmission projects since April 2020. Among the intrastate counterparties, U.P. Power Corporation Limited has delayed payments significantly, it said. “Other counterparties such as distribution utilities of Maharashtra and Rajasthan have been timely in making payments to transmission companies.”