Solar to drive renewable energy capacity addition in FY2017: ICRA

However, wind energy capacity addition to dip due to cut in preferential tariff, delays in payments by state utilities

Rating agency ICRA has estimated that solar capacity addition will significantly increase to about 5.7 Gw in FY2017 as against the 3.0 Gw seen in FY2016. This is due to the tenders floated and proposed for award of solar projects under various state and central government policies.

However, ICRA notes in its report that there could be a decline in fresh capacity addition in the wind energy segment from 3.3 Gw in FY2016 to around 2.5 Gw in FY2017 due to several factors. These include substantial reduction in preferential tariff (from Rs 5.92 per unit to Rs 4.78 per unit) for new wind energy projects to be commissioned in Madhya Pradesh, slowdown in signing of fresh power purchase agreements (PPAs) and delays in payments by state-owned utilities in Maharashtra.

Overall, ICRA estimates capacity addition in the renewable energy (RE) sector will increase to 8.8 Gw in FY2017 as against the 6.9 Gw during FY2016, primarily led by higher capacity addition in the solar segment. Further, solar power is expected to remain a key driver for RE capacity addition in the medium term.

The RE sector has witnessed record capacity addition of 6.9 Gw during FY2016, driven by sizeable capacity addition in both the wind and solar energy segments, which stood at 3.3 Gw and 3.0 Gw respectively. As a result, the share of installed RE capacity increased to 14.1 per cent of the overall installed capacity in the country as on March 31, 2016 from 13.2 per cent as on March 31, 2015.

"The increasing share of RE capacity in the overall installed capacity can be attributed to increasing cost competitiveness of generation from RE sources, shorter execution cycle for wind and solar power projects as compared to conventional power projects and policy support from central and state governments to RE sector", says Sabyasachi Majumdar, Senior Vice President, ICRA Ratings.

The wind capacity additions were driven by the IPP (independent power producer) segment with its focus on feed-in tariff based PPAs and by the non-IPP segment with the re-introduction of the accelerated depreciation benefit. A major portion of the wind energy capacity addition during FY2016 was driven by new projects in the state of Madhya Pradesh (MP), given the attractive tariff (which was highest among all the major states with large wind energy potential at Rs 5.92 per unit) being offered in the state in the period leading up to March 31, 2016.

However, ICRA notes that transmission challenges and counter party credit risks affecting signing of PPAs and timely payments could pose challenges for the RE sector. Further with the concerns on the viability of the competitively bid tariffs in the solar energy sector, actual solar capacity addition would hinge on timeliness in achieving the financial closure by IPPs, as well as in signing of PPAs with the buyers especially the state-owned utilities.