IGI Logo

Global credit rating agency S&P Global Ratings on Monday said the Indian renewable energy sector will be highly leveraged owing to the growth opportunities.

In its new report "India Renewables: Growth Trumps Deleveraging" S&P Global Ratings said the multi-decade growth opportunities for renewable energy in India will result in persistently high leverage across the sector.

"Weaker operating performance, delayed receivables collections and high capital expenditure will weigh on credit profiles for Indian renewables," said S&P Global Ratings analyst Abhishek Dangra.

"This is despite good industry fundamentals. Renewables are economically competitive with traditional fuels and benefit from ambitious energy-transition targets in India," Dangra added.

According to S&P Global Ratings, its report also addresses a number of myths that persist for Indian renewable projects. For example, wind and solar power generation can be unreliable, if weather conditions are not conducive. Assumptions on output can be too optimistic, leading to misses on cash flow.

"Even the most conservative generation-probabilities were missed more than 40 per cent of the time, based on our analysis of operating performance for individual projects of rated companies from 2016 to 2021. As a result, cash flows can be 10 per cent-17 per cent lower than management estimates," the rating agency said.

Receivables will remain stretched for the industry. This is because the sector is reliant on state distribution companies, which frequently delay payments due to weak financial health.

"Strong financial sponsors and equity-financing opportunities have led some investors to assume that this sector will be able to improve their ratios of income to debt," said Dangra.

"However, in our view, fresh equity will be spent on growth not deleveraging," he added.