India’s renewable energy sector of about 3 GW of solar projects worth Rs 16,000 crore is likely to be affected due to the outbreak of deadly Coronavirus. According to CRISIL Ratings, the projects is on risk of penalties for missing their commissioning deadlines.
Coronavirus outbreak has killed more than 1,700 people in China and infected 70,000 others resulting in shutting down of factories due to which global supply has been disturbed. A recent analysis by the rating agency on Monday said that pre-manufactured modules are facing delays at transit to projects sites on account of precautionary restrictions on transit at ports.
Beijing has taken certain measures to combat the spread of disease by restricting transportation and shutting down factories which include those that make modules. Manufacturers has been forced to run their plant at low utilization, or to
stall operations altogether.
Agreements of power purchase signed by developers include strict commissioning deadlines and a failure to meet them can result in fines and encashment of bank guarantees.
“This puts at risk around 3GW of solar projects auctioned between July and August, 2018, which need to meet their scheduled commercial operation dates (SCODs) by July 2020. Given that orders for modules are typically placed with a lead time of six months from SCOD, these projects are now in the process of either placing orders or receiving delivery of modules. Hence, any delay at this stage can prove costly,” said Manish Gupta, senior director, CRISIL Ratings.
“As per the standard terms of power purchase agreements, non-adherence to completion timelines attracts penalties, including downward renegotiation of tariffs,” CRISIL said in a report on Monday.
To meet the commissioning timeline, the developers might choose to implement projects with more expensive modules sourced from other locations in a bid. Modules from other locations may be 15%-20% costlier and could erode returns.
“In the context, CRISIL’s credit outlook will be sensitive to any significant delay in opening up of trade with China, and consequently, delays in projects implementation,” said Anikt Hakhu, Director, CRISIL Ratings.
“Also, developers can invoke the ‘Force Majeure’ clause in the PPA under which they can seek relief under unforeseen and uncontrollable events. However, this is yet to be tested and may face legal regulatory hurdles,” the statement said.