The renewable power segment in India performed remarkably during FY24, with both wind and solar powers showing encouraging signs. According to Fitch Ratings, this uptrend is largely due to better payment habits on the part of discoms, thereby allowing more timely cash flows to clean power producers. This development seems imperative, as the country moves to achieve its ambitious target of generating 500 GW of renewable energy by the year 2030.
Payment Enhancements to Boost Renewable Energy Sector
The report further finds that a sharp reduction in payment delays by discoms has reduced the number of receivable days for renewable energy producers, improving the financial health of the sector as a whole. In FY24, average receivable days for revenue from power sales across Fitch-rated renewable energy portfolios declined to about 100 days from approximately 140 days in FY23. More precisely, solar energy receivable days went down from 117 days to 88 days and wind energy receivables days contracted from 165 days to 112 days.
This reduction in payment delay is mainly because of the government’s late payment surcharge initiative, which incentivizes the discoms to pay off their dues on time. As a result, most of the payments due from the state distribution companies have been cleared, with an improvement in cash flows for the producers of renewable energy. The other big contributors that keep this financial stability of the sector going are the sovereign-owned entities and commercial and industrial customers, who too have been paying on time.
Growth in Wind and Solar Power Generation
The improved financial positions have helped the renewable energy segment in India increase their capacity and generation in FY24. As expected, solar generation gained 2 per cent, thereby keeping the rising trend intact. After falling 5 percent in FY23, wind energy reversed it with an increase of 8 percent in FY24. Though marginally lower than Fitch expectations, largely on account of lower-than-expected resource availability, the growth of wind energy is a good recovery and a sort of resilience for the sector.
This all-round growth of renewable energy generation is indeed a good omen for India’s alignment with the world’s move towards cleaner sources of energy. Whatever challenges have come its way in the form of poor adoption rates, expensive imports, and highly costly capital for energy generation, the segment has shown resilient performance and brought India closer to its renewable energy targets.
Distribution of Renewable Energy Assets
The report from Fitch covers 110 renewable energy assets across India, from 77 solar plants of just over 4 GW and 33 wind energy generators of 2.12 GW. Of this, 56% is contracted by government-owned discoms, nearly one-third by state-owned NTPC and the Solar Energy Corporation of India (SECI) and the rest by commercial and industrial and other customers.
The concentration of renewable energy assets under the government and state-owned entities makes the case for the critical part played by public sector participation in the growth of India’s renewable energy sector. Their commitment to timely payments, contracting significant portions of renewable energy output, has provided the necessary stability for the sector to grow.
The Road Ahead for India’s Renewable Energy Sector
This increase in renewable energy production during FY24 reflects a great leap toward the goals of sustainability in India. Having said that, challenges remain, particularly with respect to scaling up the sector to achieve the 500 GW target by 2030. Having welcomed the improved timeliness in payments and cash flow, this growth trajectory needs continuous investment in renewable energy infrastructure and technology.
The Government of India is undertaking regular efforts in supporting the renewable energy sector through policy support, such as the late payment surcharge initiative, which will be crucial for the financial viability of the sector. Apart from this, resource availability, particularly for wind, would also have to be sorted out for better performance of the sector.
The progress of the renewable energy sector in FY24 underlines that India can lead in the global transition towards clean energy as it moves further into its sustainable energy future. This sets a good base for further gains over the upcoming years.
Source: Fitch Ratings
Source: Content provided by the report ‘India Renewable Energy- FY24’ by Fitch Ratings.