India’s rapidly growing renewable energy projects will gain from easier finance for investments following the upgrade of the country’s sovereign rating by Moody’s, industry leaders said. But the good news may be overshadowed by regulatory woes stifling the sector.
“Moody’s upgrade of India to a solid investment grade level is a positive and significant move. This will especially be beneficial for the renewable energy sector where sectoral lending options for domestic financial institutions and banks are limited and interest costs are an important part of the project cost,” said Sumant Sinha, chairman and CEO of ReNew Power.
For multinationals such as Sembcorp, India is an important market, and they have been evincing their interest in the country’s clean energy sector by increasing investments over the past year. “The upgrade reflects the growing impact of India’s economic and institutional reforms. This should have dual benefits for industry: first, a lower cost of capital will make Indian industry more competitive. Second, global endorsement may encourage the government to continue its bold reforms, especially in areas like power,” said Vipul Tuli, CEO & country head of Sembcorp India.
In August this year, Sembcorp acquired 100% stake in its renewable energy business Sembcorp Green Infra in a bid to expand its presence in the country. On November 17, US-based Moody’s Investors Service improved India’s sovereign credit rating to ‘Baa2’, citing important economic policy measures including the Goods and Services Tax (GST) and bankruptcy law, which will help reduce the borrowing cost for Indian companies and improve global investors’ outlook towards India.
Regulatory hurdles remain
With the Indian government’s aggressive push for renewables, the industry remains positive of the potential of the sector. However, it is also cautious of various policy hurdles, especially relating to renegotiation of power purchase agreements (PPAs), among other things.
While an improvement in India’s credit rating is a “big positive” for the renewable energy sector, which is heavily reliant on global capital, regulatory and commercial challenges may overshadow this development, said Kameswara Rao, leader-energy, utilities and mining at PwC India. “The uptick in renewable energy M&A deals is a clear sign of how difficult it has become to pursue greenfield projects. Investors are paying a premium to overcome this regulatory uncertainty,” he added.
Investors are bullish on the sector despite the challenges but at the same time maintain that government should be able to translate this positive development on the ground by ensuring the sustainability of the energy mix in India.