Fitch Flags India’s Credit Ceiling and Governance as Key Risks to APAC Renewable Energy Ratings – EQ
In Short : Fitch Ratings reports that India’s BBB- country ceiling and governance challenges impact Asia-Pacific renewable energy credit ratings. Among 13 issuers rated from ‘B’ to ‘BBB-‘, some are weighed down by these factors. While solar projects show stable performance, waste-to-energy and hydropower face variability. Long-term contracts and rising grid tariffs help offset risks in power purchase agreements.
In Detail : Fitch Ratings has evaluated the credit quality of 13 renewable energy issuers across the Asia-Pacific region, including several Indian portfolios, assigning ratings from ‘B’ to ‘BBB-‘. These ratings are influenced by factors such as financial strength, offtaker profiles, debt structure, and governance practices. For some Indian entities, the country’s BBB- ceiling and governance issues play a key role in capping their creditworthiness.
The agency assesses volume risk in solar and wind projects by analyzing performance variability and energy yield forecast spreads. Solar projects tend to receive lower revenue haircuts due to their predictable output and simpler operations, making them more stable investment opportunities within the renewable sector.
In contrast, waste-to-energy projects, though displaying higher load factors, are more exposed to risks in fuel supply availability. This variability is often addressed through agreements with local suppliers and an established fuel base near the project sites to ensure consistent operations.
Geothermal and hydropower projects are evaluated based on operational history, investment plans, and take-or-pay agreements. Availability estimates also consider the scope and sufficiency of scheduled maintenance and major overhauls to maintain long-term functionality.
Most rated renewable portfolios are backed by power purchase agreements with government-owned utilities, Indian state distribution companies, or commercial and industrial customers. These agreements are typically long-term and fixed-price, shielding projects from market price fluctuations. However, commercial contracts tend to be shorter, lasting five to ten years, with tariffs generally set below grid rates.
Despite the shorter contract tenors, the risks tied to renewals and renegotiations are partly mitigated by increasing grid tariffs and, in the case of captive projects, minority ownership stakes by end-users in the energy assets. These factors help balance credit risk and ensure continued investor confidence in India’s renewable sector, even under the constraints of its current credit rating.
