MUMBAI: The merger and acquisition activity in the renewable energy space has remained sluggish in the last 12 months, with major players counting on enough capacity available to bid for new projects, India Ratings (Ind-Ra) said in its latest report on the power sector.
Experts believe, going forward, there could be a few deals in patches. However, high interest rates and rupee depreciation have discouraged a major surge in capital market transactions on the debt side, they said.
Ind-Ra said achieving financial closure for new renewable projects with highly competitive tariffs and refinancing of existing loans, too, could emerge as a challenge on account of the low margin for error.
“A sense of cautious optimism is spreading across renewable projects, with bidders and lenders going circumspect around low margin of error owing to the steep fall in tariffs since the start of the auction regime,” the report said.
Interestingly, Ind-Ra experts believe that the recent scrapping of solar auctions caused by concern over higher tariffs quoted by developers could derail the Ministry of New and Renewable Energy target to achieve 100 GW of solar capacity by 2022. Experts add that solar auction target for the current fiscal may be missed on account of frequent changes in the implementation of safeguard duty, apprehensions about grid connectivity and land acquisition-related bottlenecks.
Another issue is depreciation of the rupee against the US dollar which poses a threat to economical solar tariffs.
On operational renewable capacity, Ind-Ra said solar projects demonstrated stable generation levels as grid availability improved during FY18. In addition, major state distribution utilities, including Solar Energy Corporation of India, demonstrated a stable payment history in FY17 and FY18, the agency pointed out.
The wind sector, however, has seen lower generation than a year ago. The Ministry target to conduct 10 GW of auctions in FY19 may be missed, Ind-Ra said.