Installed capacity of storage-backed renewable energy (RE) in India is likely to increase to 25 – 30 gigawatt (GW) by fiscal 2028 from almost nil last fiscal, said Crisil Rating.

The incremental capacity will account for more than 20% of the total RE capacity to be added over the three years, driven by the central government’s push to make renewables more sustainable.
 
Such storage-backed RE projects provide an effective solution for the intermittent nature of RE generation. Such projects - which include firm and dispatchable renewable energy, solar with energy storage etc - supply power when required, supporting grid stability. These can provide green power on a monthly or hourly schedule or at the peak hours of morning and evening, said the rating company.
 
Thus, the government is pushing for these projects in a bid to make renewables a sustainable part of the country’s power mix. The thrust is reflected in the high volume of these projects in recent tender auctions, forming ~25% (or ~11 GW) of the total capacity awarded through tenders by central agencies in calendar year 2024 as against ~11% (or ~2.5 GW) in calendar year 2023. Given the high energy requirements, these projects need an average oversizing to the extent of ~2.5 times1 of contracted capacity. This has resulted in a cumulative capacity pipeline of ~34 GW.
 
That said, almost the entire capacity awarded through these tenders is either in development or in a nascent stage of construction, which exposes these to risks inherent in project implementation. Risks in these projects typically manifest in the form of delay in securing offtake agreements, funding and execution. But we believe these risks to commissioning2 with material overruns would be low to moderate - with off-take and funding risks being low. Further, the proactive approach by developers, especially towards land and connectivity requirements, augurs well - limiting the construction risks.
 
Ankit Hakhu, Director, Crisil Ratings, said, “Offtake risk is low for nearly half of the upcoming capacity as these have secured long-term (~25 years) power purchase agreements (PPAs)3 at a fixed tariff, which also provides revenue visibility. For the remaining half, the risk is elevated as their tariffs4 are ~55% higher compared with vanilla RE projects, which could delay signing of PPAs. However, there are at least three reasons to believe these projects, too, will tie up PPAs in the near term-first, the government’s push for a higher share of green power in overall energy generation; second, increased ability of these projects to meet higher energy requirements (akin to thermal plants) at comparable tariffs; and third, increasing renewable purchase obligations (RPO)5 of discoms.”
 
The release said that the funding availability is also not expected to be a material challenge as the healthy cash-flow generation potential post commissioning (backed by higher generation profile and tariffs) as well as long-term revenue visibility through 25-year PPAs should spur lender interest. Plus, with almost all the bid-out capacity backed by sponsors with proven track record of fund raising, the funding risk is low.

Ankush Tyagi, Associate Director, Crisil Ratings, said, “Finally, execution risks related to construction appear low to moderate. Basis our understanding from developers, nearly ~70% of the awarded capacities in calendar year 2024 have either identified or secured the critical resources required - mainly land and grid connectivity - prior to bid participation. This will stand them in good stead. For the remaining capacity, the risk is slightly elevated and there could be some delays. Overall, we are factoring nearly 80% of the capacities awarded during calendar years 2023 and 2024 to have a high likelihood of getting commissioned in the next three fiscals. Further, some capacities will also pan out from those awarded in calendar year 2025, resulting in a cumulative capacity additions of more than 25 GW by fiscal 20286.”
 
The capacity addition will also be aided by steps taken by the government to ramp up the transmission infrastructure to support the increasing pace of renewable capacity addition. This increases the likelihood of completion of evacuation infrastructure in line with the expected project commissioning date and, thus, mitigates implementation risk for these projects to a large extent.
 
As a result, the risks related to commissioning within the expected period are low to moderate.
 
That said, material challenges pertaining to timely receipt of land and evacuation infrastructure as well as delayed PPA closure against our base expectation could result in longer-than-anticipated execution timelines and will bear watching.