With the share of renewable energy (RE) in the overall generation mix rising across India, rating agency Icra expects a capacity addition of 10,000 MW in fiscal year 2020, and has maintained a stable outlook for the sector.

The share of renewable energy in the generation mix has increased from 5.6 percent in FY2015 to 7.8 percent in FY2018.

"This rise is owing to the large-sized capacity addition in the wind and solar power segments during this period, driven by policy support from central and state governments as well as the significantly improved tariff competitiveness of wind and solar power vis-a-vis conventional power sources," it said.

Icra group head - corporate ratings Sabyasachi Majumdar said the project awards by the central nodal agencies and state distribution utilities in 2017 and 2018 (year-to- date) provide a reasonably healthy visibility for RE capacity addition in FY2019 and FY2020 with expected addition of about 9,000 MW in FY2019 and about 10,000 MW in FY2020.

"This is expected to increase the share of RE in the all India generation to 10 percent by FY2020 and further to 13 percent by FY2022 based on capacity addition forecasts. We have maintained a year-end stable outlook for the domestic renewable energy sector," he added.

Icra, however, noted that RE sector especially wind and solar segments remain exposed to near-term challenges arising due to cost impact of safeguard duty and rising interest rate, coupled with transmission network availability.

The average bid tariffs discovered in the auctions for wind and solar power projects in 2018 has so far remained at Rs 2.6-2.7 per unit, increasing slightly from the low of Rs 2.4 per unit.

This uptrend in bid tariffs was partly driven by factors such as cost headwinds arising from rising interest rates, increase in capital costs due to imposition of taxes and duties, rupee depreciation against dollar for imported equipment, and rising equipment costs, it said.

"However, notwithstanding these cost pressures, wind and solar PV (photovoltaic) energy projects are likely to remain cost competitive against conventional power sources," Icra said.

On the other hand, the viability of bid tariffs for wind and solar IPPs (independent power producers) remains critically dependent upon the capital cost, long tenure debt availability at competitive cost and plant load factor level.

"Amidst the imposition of safeguard duty, the recent order issued by the Central Electricity Regulatory Commission (CERC) approving the GST claims raised by solar power developers is a positive development for the sector. However, a time lag in implementation of such pass-through of cost increases cannot be ruled out, given the resistance shown by the end off-takers in such cases in the past," it noted.