India utilities hit by credit risks amidst renewables push: Moodys

State-owned distributors face weak off-taker credit quality and a young regulatory environment.

The share of renewable energy in India's electricity generation is expected to rise to around 18% by 2022 from 7.8% in the present, however, weak credit risks remain, Moody's Investors Service said in a report.

India has taken steps to fulfil its Nationally Determined Contribution (NDC) commitments under the Paris Climate Agreement, Moody's said. In line with its NDC commitments, India is aiming to have 40% of cumulative capacity from non-fossil fuel-based sources by 2030.

Abhishek Tyagi, Moody's senior analyst, said large companies have announced plans to make their operations source more renewable energy and more energy-efficient. Independent power producers (IPP) and other companies are also boosting shifting to the use of renewable energy.

"Renewable energy's share of new capacity additions for power generation has been the largest at around 60% over the last two years, whilst additions to coal-fired generation capacity have slowed sharply," he added.

Amongst the firms exploring the utilisation of renewable energy is NTPC Limited. It is eyeing the expansion of its non-fossil fuel-based capacity from 2% in 2018 to 30% of generation capacity by 2032.

Meanwhile, Tata Power Company Limited, India's largest IPP, wants to boost its share of non-fossil fuel-based sources from 32% to 40%-50% by 2025.

The report noted that India's fossil fuel-based power generation capacity is expected to decrease from 67% to 50-55% by 2022. The country's use of existing coal-fired capacity has steadily decreased since 2010 with annual growth expected to slow down to 4-5% in the next five years, it added.

Moreover, wind and solar tariffs are now comparable with or lower than domestic coal-based projects.

However, one challenge that begs to be addressed is the weak credit profiles of many off-takers which are usually state-owned distribution companies.

"The RE sector also faces challenges, despite its strong growth prospects, notably weak off-taker credit quality and a regulatory environment that is still developing," said Tyagi.

India needs to expand its transmission infrastructure amidst the growth of the renewable energy sector, Moody's concluded. This will ensure the efficient evacuation and inter-regional transmission of electricity.