Focus on supportive measures towards the renewables as well as strengthening of transmission & distribution expected in Budget 2021

Updated : January 30, 2021 07:08 PM IST

The outlook on the renewable energy (RE) remains stable, given the continued strong policy support from the government of India, supportive regulatory framework and improving tariff competitiveness for renewables both in wind and solar energy segment.

The sector is expected to remain a key driver of capacity addition in the power sector, with a dominant share of 65-70 percent over the next five years. The overall incremental capacity addition in RE segment is estimated at about 70 GW which will further require aggregate investment outlay of about Rs 3.5-4 lakh crore over the next four and half year period till March 2025.

In this context, further supportive policy measures from the government are expected in order to ensure availability of long tenure financing avenues for such projects. So far, the renewables sector has already witnessed aggregate project awards of 78 GW under the tariff-based competitive bidding route across wind, solar and hybrid projects. Within this, the solar power segment has occupied a dominant share of 79 percent in the bid-out projects, followed by wind and hybrid share at 16 percent and 5 percent respectively.

Given that wind and solar power projects are likely to be concentrated in a few resource-rich regions and the fact that such projects have relatively lower gestation period (18-24 month), the inter-state & intra- state transmission network must be augmented in a timely manner.

Thus, ICRA expects the budget to accelerate the execution of such transmission network strengthening projects (both at intra-state and inter-state level) through higher budgetary allocation and faster approval from central/state nodal agencies, as well as regulatory bodies.

While there is a policy thrust under ‘Atmanirbhar Bharat’ to encourage domestic manufacturing of solar cells and modules, the clarity w.r.t. tariff (such as basic customs duty) and non-tariff concessions (like production linked incentive scheme as announced earlier) are still awaited.

Even as the RE sector witnesses growth, the distribution segment (which is predominantly state-owned) continues to lag behind and remains the weakest link in the value chain of power sector.

While significant reforms are proposed in the sector including draft amendments in Electricity Act/Tariff Policy as well as w.r.t. the privatisation of discoms to bring about a sustainable improvement in discom finances, their pace of implementation by state governments and proactive focus by the utilities to ensure the operational improvements (w.r.t. tariff, cost and efficiency levels) remain critical areas to monitor.

In this context, a higher budgetary allocation is likely towards strengthening of distribution infrastructure so as to enable the discoms to improve their operational efficiencies (i.e. to ensure the distribution loss levels in line with regulatory targets).

Coming to the energy demand, the all India electricity demand is expected to grow 6.0–7.0 percent in FY2022 as against an estimated decline of 2.0– 2.5 percent in FY2021. The growth will be driven by a favourable base effect and likely recovery in demand from the commercial and industrial (C&I) segments.

As a result, the all-India thermal PLF though remaining subdued is likely to improve to 57.0- 58.0 percent in FY2022 from the estimated level of 53.0- 54.0 percent in FY2021.

Given the subdued thermal PLF levels, lack of visibility in signing of new power purchase agreements (PPAs) for thermal IPPs and modest tariffs in the short-term power market, the outlook on the thermal power segment continues to remain negative.

Nonetheless, the credit profile of the Central power generation utilities is supported by the presence of long-term PPAs under the cost-plus tariff structure, and strengths arising out of sovereign parentage.

In thermal segment, the policy measures are thus required to revive stranded gas-based projects as they can be used to meet peak power demand; and as a balancing power source in light of the rising share of intermittent renewable generation expected in the overall energy mix.

Girishkumar Kadam is vice president & sector head - corporate ratings, ICRA Limited.

Focus on supportive measures towards the renewables as well as strengthening of transmission & distribution expected in Budget 2021

You May Also Like

KVIC's e-market portal achieves Rs 1.12 crore turnover in 8 months

Important update for passengers boarding domestic flights from Mumbai airport

Countdown begins for ISRO's first mission in 2021, Brazil's Amazonia-1 on board

Trending on CNBC-TV18

recommended for you