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Home Latest News Sovereign rating downgrade poses a risk to green energy investors in India

Sovereign rating downgrade poses a risk to green energy investors in India

The recent downgrading of India’s credit rating entails an increased risk of attracting global investors in the country’s renewable energy sector.

Earlier this month, Moody’s downgraded the country’s credit rating to the lowest investment grade level with a negative outlook. The country’s creditworthiness has been revised from Baa2 to Baa3. In April, both Moody’s and Fitch warned that the deterioration in India’s financial outlook as a result of the economic slowdown could put pressure on the government’s rating.

Foreign investors will now be reluctant to invest in India’s promising renewable energy sector, particularly solar energy. Last year we received substantial foreign funds from the Abu Dhabi Investment Authority (ADIA), Orix and Temasek, the solar energy developer said.

India’s renewable energy sector made $8.4 billion worth of investments between 2019 and 20. This is apparent from a report by the Institute for Energy Economics & Financial Analysis (IEEFA), which quotes figures collected by JMK Research.

More than 63% of these investments were made by five renewable energy companies – Greenko Energy Holdings, ReNew Power, Adani Green energy, Infrastructure Leasing & Financial Services (IL&FS), Sterling and Wilson – while 46% were contributed by five investors: Abu Dhabi General Insurance Corporation (GIC) and Abu Dhabi Investment Authority (ADIA), Orix, Temasek, Total and Shapurji Pallonji and Daruvala Ruff.

While Greenko Energy Holdings was India’s leading renewable energy developer in 2019-20, GIC and ADIA were the largest investors, with the entire capital invested in Greenko Energy Holdings – 46% in equity ($824 million) and the rest in green bonds ($950 million). Greenco also raised $350 million from JP Morgan and Deutsche Bank through Green Bonds.

IT’S STILL READABLE: NTNK sets up a joint venture with the CGSB to develop its activities in the field of renewable energy.

IEEFA believes that as the cost of debt and the price of solar panels fall, it is time for the Indian government to accelerate the transition to energy by improving energy regulation and policy making. The government should reduce the risk of over-the-counter trade by ensuring that discotheques (electricity suppliers) can honour contracts and payments to producers as it has proposed.

Finally, in order to attract more investment, public authorities need to provide political certainty and explore innovative financing solutions. With the global appetite shifting to cheaper deflationary renewable energy technologies and more than 130 world-class banks and financial institutions committed to withdrawing their money from the fossil fuel sector, it is time to make India an attractive investment opportunity and build a strong economy with sustainable energy options, said Vibhuti Garg, Energy Economist at IEEFA India.

The government needs to reform and strengthen the supervision, regulation and capitalisation of the financial sector in order to increase investor confidence, added Mr Garg.

The share of renewable energy sources in the country’s electricity sector is increasing. In the fiscal sector, this sector accounted for two thirds of the increase in new capacity. The country installed 9.39 GW of new renewable energy sources on the grid in the past financial year, in addition to 1.5 GW of solar energy from a roof meter in the calendar year 2019.

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