JM Financial Institutional Securities Ltd stated in their report, “Only half of India’s tendered 53 GW solar power contracts are under construction.”
As reported earlier the State Electricity Distribution Companies (Discoms) are facing a lack of funds. Also, now the solar tariff is much cheaper than before. As a result, Discom is not willing to sign any kind of Power Supply Agreements (PSA) with these intermediaries buyers such as Solar Energy Corporation of India (SECI).
According to the report, “Discoms’ lag in signing PSAs stems from slow demand growth and falling solar tariffs, implying that the last to sign PSAs gets the cheapest power. However, we estimate 32GW of fresh PSA potential if all states meet their RPO (renewable purchase obligation) targets.”
This can become a big problem because recently, the Chinese solar suppliers have given a very high raise to the solar modules prices. The suppliers are reneging on their contracts to supply equipment that had already been contracted for, even at the risk of their bank guarantees getting encashed.
Further, the report added, “We find only 50% actually under construction as 35% lack PSAs, while another 14% has been canceled. Of the remaining 27GW, about 44% includes PSAs with discoms, while 56% includes state tenders that have an implicit PSA with respective discoms.
With Seci tenders facing difficulty in getting PSA, the trend is again moving towards individual state tenders, which offer ready PSAs, though they come at great receivables risk of each state Discom’s credit rating.”
At present, the country’s electricity demand is increasing very fast, which has crossed the 200 GW mark. In such a time, this step of Discom can increase a lot of problems. While India currently has an installed renewable energy capacity of 89.63GW, with 49.59GW under execution.
According to ICRA ratings, India’s renewable energy capacity will increase from 7.4 GW to 10.5 GW in the current financial year. Rating agencies also stated that there is a strong solar project pipeline with a capacity of 38 GW and an additional 20 GW of clean energy projects being bid out.
The report added, “The CoD (date of commissioning) schedule implies 17-18GW additions in FY22, on covid19-led spillovers from FY21, which saw the addition of 5.5GW vs. the peak of 14.5GW in FY17. Yet, the pipeline beyond FY22 is weak unless more tenders with signed PSAs emerge. The current pipeline of tenders in FY22 is for 10GW.”
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