Near-term headwinds to weigh on India’s power and renewables growth: Fitch
Singapore: India’s power consumption and generation are likely to contract by 6.6 per cent and 6.8 per cent respectively, and for capacity to grow by only 2.7 per cent this year, according to Fitch Solutions.
“Our initial forecasts accounted for a slight recovery in the second half of 2020 from COVID-19 pandemic but we no longer think this will take place, given near to medium-term pressures on the sector from multiple fronts,” it said.
“Over the longer term, we expect India to add a net capacity of 262 gigawatts between 2019-end and 2029. However, there are increasing downside risks to this view if structural issues in the sector remain unresolved.”
Fitch Solutions said its country risk team has revised forecast for India’s FY21 real GDP to contract by 8.6 per cent from a 4.5 per cent contraction previously as continued state-level COVID-19 movement controls amid a still rife outbreak across many major states have continued to weigh on the economy.
Ongoing lockdowns will weigh on domestic economic activity, including manufacturing, heavy industries and construction, all of which are energy-intensive sectors. Power capacity growth will also slow as a result of project delays stemming from labour and supply chain disruptions.
Recent events have also exacerbated key issues in the power sector, including high debt levels and dependence on power equipment imports amid supply chain disruptions, which poses considerable risks to India’s power expansion plans over the longer term.
Despite some attempt to relieve these issues in recent months, Fitch Solutions remain bearish on the effectiveness of these efforts given the ongoing structural problems in the sector and implementation time lags.
“We believe that the government also has to enact complementary supportive policies to boost local manufacturing, beyond increased taxation and restrictions, to support continued growth, particularly for its solar sector,” it said.
The ongoing China-India tensions will also cause increased supply chain disruptions, project delays and reduce the viability of certain projects in the pipeline due to cost pressures, it added.
In India, Chinese imports account for 80 per cent of the equipment and components in the solar power sector, 40 to 50 per cent in the coal power sector (90 per cent if excluding state-owned utilities) and about 30 per cent in the transmissions and distribution sector.
Given this high level of reliance, these restrictions will disrupt existing supply chains and cause further delays to a sector that is already reeling from the COVID-19 crisis.
Several developers with projects at an advanced stage have also reported consignment delays due to a deadlock at Indian ports despite these consignments having been paid for and shipped prior to the announcement.
The existing economic responses will weigh on investor interest going forward, said Fitch Solutions.
Source: ANI
