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Last Updated : Sep 04, 2019 11:42 AM IST | Source: Mint

Developers, investors losing interest in renewables sector

The Solar Energy Corporation of India saw its last two reverse auctions go undersubscribed. Recent developments in Andhra Pradesh have made developers wary of increasing exposure to changing moods of states.

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Representative Image

The renewable energy sector has seen a steep fall in interest from both developers and long-term investors. While the number of acquisitions of operating renewable energy power plants has dropped, bidding for new government projects have halved this year from the same period last year. Developers blame the slowdown on uncertainty over power purchase agreements (PPAs) being honoured and a lack of financing for the sector.

The Solar Energy Corporation of India (Seci), the arm of the ministry of new and renewable energy that conducts auctions for greenfield renewable power projects, saw its last two reverse auctions go undersubscribed. Before this, Seci cancelled auctions of 2.4 gigawatt (GW) of its 3.3GW interstate transmission system-connected solar auctions. For the first half of this year, data from market researcher Bridge to India shows that even in auctions that were concluded, the subscription multiple has halved from 2.24 in 2018 to 1.09 in 2019.

Vinay Rustagi, managing director, Bridge to India, said these trends signalled a worsening investment environment for the domestic renewables sector. “Most of the equity capital in the sector has come from outside India, and the international investors are very cautious after recent troubles with payment delays by state-owned power distribution companies and attempts to renegotiate PPAs. Even the Indian players are losing interest as evident from many tenders being heavily undersubscribed recently. Our database shows that there were more than 200 bidders for solar projects in 2015 but this number has fallen sharply to just about 30 developers in H1 2019. The industry has been consolidating with the share of the top five bidders in total bid submissions going up from 34 percent to 54 percent in the last five years.”

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Recent developments in Andhra Pradesh have made developers wary of increasing exposure to changing moods of states. In July, the newly elected Y.S. Jaganmohan Reddy government in AP announced it would cancel PPAs signed by its predecessor that carried high tariffs. While this order is being challenged in the AP high court, the government has so far resisted pressure from the Prime Minister’s Office, the ministry of power and the Japanese ambassador to India (Japanese investor SoftBank is a leading investor in green energy in India) to desist from such a move. Meanwhile, private developers who risk their PPAs with the AP government being cancelled have seen credit ratings fall, pushing up their borrowing costs.

“The happenings in AP are enhancing the risk perception in minds of investors and I hope this is solved early,” said Ashish Khanna, president-renewables, Tata Power, and managing director, Tata Power Solar Systems. “The issue is not only Andhra but if it’s one state today that can renege on PPAs, tomorrow some other state can follow.”

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First Published on Sep 4, 2019 11:42 am
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