Renewable Energy capacity to rise to 170 GW by March 2025, says ICRA

New Delhi: India's installed Renewable Energy (RE) capacity, excluding large hydro plants, is estimated to increase to 170 GW by March 2025 from a level of 135 GW in December 2023, rating agency ICRA said on Friday.

"ICRA estimates that the rise in the RE capacity over the next five-six years is estimated to enhance the share of RE plus large hydro in the all-India electricity generation from about 23 per cent in FY24 to around 40 per cent in FY30," ICRA said in a statement.

Given the intermittency associated with RE generation, the availability of Round The Clock (RTC) supply from RE sources remains important, it stated.

This can be made possible through the use of wind and solar power projects complemented with energy storage systems, it suggested.

According to the statement, ICRA expects the installed RE capacity, excluding hydro energy, in India to increase to about 170 GW by March 2025 from 135 GW as of December 2023.

Thereafter, the capacity addition is likely to be supported by the significant improvement in tendering activity in the current fiscal with over 16 GW projects bid so far, and another 17 GW bids underway by central nodal agencies, it stated.

This is in line with the 50 GW annual bidding trajectory announced by the Government of India in March 2023, it noted.

Girishkumar Kadam, Senior Vice-President and Group Head, Corporate Ratings, ICRA, said in the statement that the tariffs discovered in the RE-RTC tenders remain higher as against the standalone solar and wind energy tenders, with recent RTC bid tariffs seen in the range of Rs 4-4.5 per unit, mainly on account of the cost associated with the storage component and higher share of wind energy component expected.

Further, based on the prevailing capital cost of Battery Energy Storage Systems (BESS) and Pumped Hydro Storage Projects (PSP), the viability of the RTC projects remains relatively better with the use of PSP capacity, he said.

Nonetheless, the supply chain challenges in the wind energy segment could pose challenges for the execution of RTC projects, he said.

As per ICRA, the sharp decline in solar PV cell and module prices, abeyance of the Approved List of Module Manufacturers (ALMM) order till March 2024 and the timeline extension approved for solar and hybrid projects is expected to lead to an improvement in RE capacity addition to 18 GW to 20 GW in FY24 from 15 GW in FY23.

This, along with the growing project pipeline, is likely to support the scale-up in capacity addition to 23-25 GW in FY25, as per ICRA estimates, mainly driven by the solar power segment.

However, it stated that challenges remain on the execution front with respect to delays in land acquisition and transmission connectivity, which could hamper the capacity-addition prospects.

Kadam added that the sharp decline in solar PV cell and module prices by 65 per cent and 50 per cent, respectively, over the past 12 months is leading to a healthy improvement in debt coverage metrics for the upcoming solar power projects.

Benefitting from this, for a solar power project with a bid tariff of Rs 2.5 per unit and sourcing modules from domestic OEMs using imported PV cells, the average DSCR (Debt Service Coverage Ratio) has improved over 35 basis points, he said.

DSCR is a measure of the cash flow available to pay current debt obligations.

While this is positive in the near term, the developers would remain exposed to movement in imported solar PV cell and wafer prices, till fully integrated module manufacturing units are developed in India, he said.

State distribution utilities (discoms) have shown an improved discipline in making payments to power generators, including RE IPPs (Power Producers), following the implementation of the late payment surcharge rules in June 2022, it stated.