India Ratings continued with stable rating outlook for solar power projects, but assigned a negative outlook for wind power projects

India Ratings and Research has conferred a positive rating outlook on thermal power plants, attributing it to an upswing in plant load factor (PLF) and sufficient liquidity. Despite intermittent supply challenges amid heightened demand, the rating agency suggests that thermal power projects can sustain availability through the use of imported coal, given the clarity on full pass-through of imported coal costs during periods of domestic supply shortages.
The agency emphasises the critical role of adequate liquidity and working capital limits in managing cost escalations or delays in receivables. The positive outlook is anchored in the anticipation of a plant load factor exceeding 65 per cent for FY24 and FY25, coupled with improved visibility on coal cost pass-through.
In the face of a renewed focus on green energy, coal-based power plants are experiencing a resurgence in demand, driven by record-breaking power demand this year. The Central government’s directive for all power plants, including those reliant on imported coal, to operate at full capacity underscores this shift. Union Power Minister RK Singh has outlined plans for setting up 12 GW of thermal power capacity in the country by March 2024.
India Ratings, assessing the energy infrastructure holistically, notes a considerable reduction in the receivables cycle across counterparties following the implementation of the LPS rules in 2022.
This has notably enhanced the liquidity profile of projects dealing with weak counterparties. The state of internal liquidity, relative to counterparties’ strength and diversification, remains a pivotal rating factor for all generation assets.
The renewables sector witnessed increased tender activity, with auctioned capacity in 1HFY24 surpassing the total capacity auctioned in FY23. However, challenges persist in execution, particularly concerning land acquisition and transmission connectivity, amid moderating commodity prices.
Solar power projects maintain a stable rating outlook due to their consistent operations, ample debt service coverage, and comfortable internal liquidity. Despite a positive shift in module prices, timely project completion remains critical given the slowdown in capacity addition observed in 1HFY24 compared to the previous year.
In contrast, wind power projects face a negative rating outlook due to ongoing generation variability issues. India Ratings anticipates wind power generation in FY24 to mirror levels seen in FY23. The elimination of reverse auctions is expected to enable developers to bid with a better risk-return profile, potentially enhancing capacity addition in the medium term.