Rising bad loans weaken investor appetite for India's renewables

Financial deals in renewable technologies were halved in H1 2019.

Investors are expected to be selective about investing in renewable energy projects in India ascertaining the developer’s ability and strength and the cost of debt procurement, which can make securing debt capital challenging in the near term, according to a report from GlobalData.

Somik Das, senior power analyst at GlobalData, commented that the number of rising bad loans in the power sector with the pandemic in place, has driven the public sector to opt for a more risk-averse approach where they are particularly lending to more promising projects.

“The non-banking financial companies (NBFCs), which are more active in this space, are trying to maintain their liquidity and in turn, would likely be less active in lending for RE projects,” Das added.

The renewable energy sector in India contracted by over 50% in H1 compared to the same period last year. The number of financial deals in renewable energy technologies was also halved to just over 50, compared to 104 in H1 2019.

Further, the country’s distribution companies have been focussing on maintaining the liquidity, as delays in payments have impacted their immediate working capital. The under-construction renewable energy projects bear the chance of seeing delayed financial closures.

This calls out for structural reforms in the electricity sector without which the financial condition of the distribution companies would deteriorate, GlobalData said.

Still, India is expected to add around 16GW of renewable capacity due in 2020 to a strong development pipeline, government support and presence of serious developers to disseminate the growth seeds.

“Even with the fragile current investment landscape, the government is making the necessary arrangements to smoothen the funding flow by proposing to remove the limit under priority sector lending to the RE projects, lowering the tariffs and associated costs,” Das said.