India’s rising power demand, growing at roughly 10 per cent annually, is brightening investment prospects in the sector with major focus being on renewable energy (RE) and transmission projects. Moody’s Ratings on Thursday said that RE and electricity transmission will continue to drive investments in India’s power sector over the next 6-7 years.
“Incremental coal-based generation capacity additions are also likely to supplement baseload requirements because we expect power demand to grow by 5-6 per cent per annum over this period. The significant increase in capital spending for RE companies, which is largely funded by debt, will lead to high financial leverage over the next three years, a credit negative,” it added.
However, the stable regulatory environment and policy support continues to facilitate energy transition for power companies, the agency pointed out.
RE & transmission
India’s target of 500 gigawatts (GW) RE capacity by 2030 requires an annual capacity addition of around 44 GW. To meet these targets, India will require $190-215 billion of investment over the next seven years. “We estimate that another $150-170 billion of investment will be required for electricity transmission and distribution, and energy storage to cater to the incremental renewable energy capacity,” Moody’s said.
The sizable pipelines of announced projects will likely keep financial leverage of rated renewable power companies high over the next 2-3 years, a credit negative but leverage of government-related issuers is likely to remain moderate over the same period, it added.
Over the next 6-7 years, RE projects will be the largest contributors to new power generation capacity in India. “We estimate that the total investment needed to add the necessary 310 GW of additional RE capacity over the next seven years will be $190 -215 billion, or $32-36 billion annually. We expect that the total grid investments (including storage) needed to optimally use the new generation capacity will be in the range of $150-170 billion over the same period. Access to low-cost, long-term capital from the public and private sectors will be vital to achieving these goals,” it added.
- Also read: India’s peak power demand hits 250 GW
Coal is king
Coal will continue to play a key role in power generation despite the huge RE capacity expansion. While the strong growth in India’s renewables capacity is likely to continue, coal will remain an important source of electricity generation in the next 8-10 years, which mitigates stranding risks for coal-based power assets.
“We expect India to add 40-50GW of coal-based capacity over the next five to six years to help meet power demand, which is likely to grow by 5-6 per cent annually over this period. The utilisation rate for coal-based capacity is likely to remain high at around 65-70 per cent despite these additions,” Moody’s predicted.