Moody's today projected a stable outlook for power sector while its Indian affiliate ICRA said that reforms for the distribution sector under UDAY scheme have seen mixed results.
"Moody's has a stable outlook on the power sector. However, ICRA believes that the reforms for the Distribution Utilities (DISCOMs) -- UDAY (Ujwal DISCOM Assurance Yojana) have seen mixed success," a Moody's statement said.
At the 4th Annual Credit Conference in Mumbai, the Moody's statement said its stable outlook on the power sector reflects that improvement in domestic coal availability is moderating the fuel supply risk.
It also said that while distribution utilities have seen an improvement in their liquidity, the extent to which operational efficiency has improved is still unclear.
Moody's believes that India is taking steps to align its power generation mix towards its nationally determined contribution (NDC) commitments under the Paris accord signed in December 2015.
Renewable Energy's (RE) share in new capacity additions has been around 60 per cent for last two years while on the other hand the coal based additions have seen a sharp slowdown.
"India's focus on greening its energy mix would imply strong growth for renewable energy over next many years," said Abhishek Tyagi, Moody's Vice President and Senior Analyst.
This growth, according to the US based credit rating agency, will however be accompanied by key challenges for RE projects, notably weak offtaker credit quality and an evolving regulatory framework.
Moreover, the recent round of biddings in the case of solar projects have seen a sharp drop in the quoted tariffs, and the ability of such projects to achieve financial closure, given the concerns over the fact that the long-term viability of projects at such tariffs remains to be seen, it said.
ICRA Ltd Executive VP and Chief Rating Offier Anjan Ghosh said the UDAY reforms for discoms have seen mixed success.
"A total of Rs 2,321 billion of debt has been refinanced under the UDAY scheme so far, which has greatly aided both the financial and liquidity position of the DISCOMs, with estimated interest cost savings of Rs. 120 billion in FY2017," he said.
However, it said, some of the state governments have in turn lent the same amount as loan, which dilutes the beneficial impact to some extent.
Nonetheless, it added, these loans will be subsequently converted to grant over the next three years and the full interest savings benefit can be seen in the 2020-21 fiscal.
More importantly, however, the progress on achieving the operational efficiency improvement has a lot of ground to cover.
As against the target AT&C (aggregate technical and commercial) losses of 15 per cent that all utilities are supposed to achieve by FY2019-FY2020, data available shows that some of the states, including large ones like Bihar, Rajasthan, Uttar Pradesh and Madhya Pradesh have much higher loss levels, in the range of 25 to 36 per cent, it said.
The sustainable improvement in financial position of the discoms remains dependent on improvement in operating efficiencies and reducing the gap between tariff and cost of supply, it added.