Crisil analysis: Sprint towards power sector's 500 Gw of green energy goal

India’s power sector is prioritising climate-transition goals, where a supportive ecosystem of energy storage, transmission connectivity and supply chain is now being created holistically.  

As of October 2024, India’s non-fossil base, including solar, wind, large-hydro and other renewables, surpassed 200 gigawatt (Gw), where 14 Gw, on average, has been added each year since financial year (FY) 2021.  

The task now is to step this up, and add non-fossils worth 60 Gw annually to reach the government’s target of 500 Gw by FY30.  

Tendering has accelerated, with over 174 Gw of solar and wind tenders having been offered between FY21 and FY24. Last FY alone, tendering volume doubled. Of this, about 92 Gw has already been awarded, indicating conversion of bids. As a result, the utility segment pipeline is estimated at about 136 Gw.  

CRISIL MI&A forecasts capacity addition of 195-210 Gw, mostly in solar and wind projects, between FY25 and FY30, driven by the existing pipeline, and growth in rooftop and green open-access segments, taking the total non-fossil base to 400-410 Gw by FY30.  

While this falls slightly short of the government’s 500 Gw target, it is still remarkable.  

The market is evolving towards storage inclusive project structures, improving power supply profiles. By FY30, storage capacity is expected to reach 35-40 Gw. This will be spread across 22-24 Gw of  battery storage systems, and 14-16 Gw of pumped hydro storage systems, making renewable power more  reliable.  

The Central Electricity Authority outlined a phased transmission system integration schedule, which is critical to support the 500 Gw target, but implementation has been slow.  

What’s salutary is that supply chains for generation infrastructure have become robust. Wind energy is already localised, and solar energy is following suit, thanks to the Approved List of Models and Manufacturers, and the Production-Linked Incentive scheme. CRISIL MI&A expects this to have a larger impact on photovoltaic downstream manufacturing and, thereby, reduce module import dependency to 5- 10 per cent by next FY.  

That said, import dependency will persist in upstream wafer and polysilicon, averaging over 50 per cent until FY30. Fortunately, a global supply glut is expected to keep prices favourable.  

The renewables sector is expected to have a stable credit outlook, backed by increasing cash accruals, project costs remaining benign for the under-implementation projects and favourable capital availability. This should keep developers’ leverage in check amid capacity addition. Operating performances will remain a monitorable, though.  

Further, project costs have trended lower in the past 2 years and are expected to continue to be benign.  This is because of low prices of solar modules and other elements of supply chain on account of increase in manufacturing capacity. Resultantly, domestic solar module prices have also reduced, supporting the viability of solar projects, which account for over 60 per cent of upcoming renewable capacity.   

Furthermore, projects with battery, which constitute about a third of the total number of renewable projects auctioned since FY24, are expected to benefit from falling battery prices. Prices have declined significantly over the past 1 year, from an average of about $150 per kWh to about $115 per kWh.   

Capital availability has continued to remain conducive for renewable developers. Recent equity capital market issuances by renewable developers and equipment suppliers highlight investor confidence in the sector.   

All these factors will lead to stable financial risk profiles for developers despite sharply rising capacities. The ratio of debt to earnings before interest, tax, depreciation and amortisation is projected to remain at about 7.8 times.   

However, weaker-than-expected operating performance poses a key downside risk to the credit outlook.   

Over the past 2 years, operating performance measured by generation, fell short of lenders’ expectations in terms of P90 energy, especially for wind, largely due to resource-related variations. A recovery is likely to be in line with cyclicality.  

  At the sector level, improvement in operating performance to meet expected generation standards will bear watching.