Solar Power threat to Indian Utilities

Most rating agencies are a bit slow compared to other research organizations. Moody’s has come out with a paid report on how India’s fossil fuel generators might face a threat from the rising penetration of solar power. We have been saying this for the last 3-4 years, but Moody’s analysts have also finally analyzed this after the chickens have come home to roost. Note the top rating agencies with their criminally flawed financial models were one of the principal reasons for the Lehman crisis. These rating agencies still manage to make money, as banks and other institutions rely on their credit ratings of companies. These analysts have put a red flag on unregulated power suppliers in the Indian market, saying that cheap and increasing renewable energy will make it difficult for them to sell power in the Indian market. 35% of the capacity last year that was installed in the power market came from green energy sources. The companies selling power will not have the safety net of regulated returns and will be hit by taxes, such as the coal cess which will make it difficult to do business as usual.

Note this phenomenon has already occurred in Germany, where major utilities are upending their business models in order to remain relevant. Their old legacy model of generating and distributing power through large central generators and grids is coming under threat from distributed green sources, such as solar plus storage. Most large developed countries such as USA and Australia are seeing increasing pressure on their utilities, as renewable energy sources continue to surge in popularity and penetration.

It is a matter of time before Indian utility companies (not only in the non-regulated sectors) will face the music. Even the regulated utilities will break, as a large number of high end customers could break away from the grid monopoly by going off the grid totally. The utilities and the regulators will not be able to defray the large costs of transmission on a small set of ratepayers. The whole Indian power sector needs to carefully think on how they will manage this massive transformation and develop a survival strategy.

A rising share of renewables in India’s power sector will pose a serious challenge to conventional power generators, said a report released on Monday by rating firm Moody’s Investors Service.

The report, Power Sector – India: Growth in Renewable Energy Capacity Will Challenge Fossil Fuel Operators, said that a rising share of renewables in India’s generation mix over the next 5-7 years will create challenges for conventional power generators.

Source – Mint