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Renewable energy auctions to attract large developers: IEEFA
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IANS | 22 Jun, 2022
Large
developers in the renewable energy sector have enough options to boost
returns even as challenges mount and will fight aggressively in the
various auctions scheduled in 2022, a new report by the Institute for
Energy Economics and Financial Analysis (IEEFA) said on Wednesday.
Falling costs of solar modules, which in turn brought down tariffs, fuelled the growth of India's renewable energy growth story.
However,
turmoil in global supply chains caused by the Covid-19 pandemic and the
Russia-Ukraine war has pushed up costs. Further, renewable energy
developers face higher financing costs as surging inflation has forced
central banks to tighten monetary policy, pushing up interest rates.
The
challenges, though, are unlikely to have a lasting impact on India's
renewable energy story. "We believe India will be able to continue its
renewable energy capacity addition trajectory because current supply
chain challenges will ease in the short-to-medium term, and the industry
has enough cushion to absorb these downside risks," says the report's
co-author Shantanu Srivastava, Energy Finance Analyst, IEEFA.
"Central
and state nodal agencies should proceed with their pipeline of
renewable energy auctions, given that interest from the large companies
in the sector should continue, even in these unprecedented times," says
co-author and guest contributor at IEEFA Ankur Saboo, an infrastructure
finance specialist.
The report highlights various options that
large renewable energy companies have to enhance their return on equity,
which would help them tackle the challenges.
According to
Srivastava and Saboo, large renewable energy developers can lean on bond
markets to refinance debt at lower rates and take advantage of a
non-amortisation period on debt repayments.
This leads to the front loading of equity returns.
Further, margins on in-house engineering, procurement and construction provide a kicker to returns.
The
sale of stakes in operational projects to strategic investors such as
global oil and gas majors and financial investors like infrastructure
investment trusts is another avenue developers have used to increase
returns.
Finally, the selling of carbon credits to developed
economies is increasingly considered a viable source of additional
income for developers, further enhancing their returns.
The
report analyses how these measures can help a solar power project and a
hybrid wind-solar power project enhance their equity returns. It finds
that refinancing at a 100 basis point lower rate of interest can help
add two per cent to a hybrid wind-solar power project's equity internal
rate of return.
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