Rationale

The rating for Avaada MHGreen Private Limited (AMGPL) factors in its strong parent - Avaada Energy Private Limited (AEPL) - which has an established track record in the renewable energy sector with an operating solar power portfolio of 4 GWp and and an under-development capacity of 5.4 GWp. AEPL is backed by Avaada Ventures Private Limited (AVPL) and PTT Thailand; together they have committed an overall investment of $700 million to this platform in FY2024 with $400 million infused so far. The committed equity will enable AEPL to scale up its portfolio over the next few years. The long-term PPAs at competitive tariffs, the satisfactory generation performance of the assets under AEPL and the availability of long-term project finance at competitive interest rates ensure adequate debt coverage metrics for the Group. The rating also factors in the limited demand and tariff risks for AMGPL due to the presence of 25-year long-term power purchase agreements (PPAs) for its solar power project at a fixed tariff under the group captive mode at competitive rates. The tariff rate offered by the company is at a significant discount to the state grid tariff rates, resulting in savings for the customers. However, the rating is constrained by the execution risks, given the under-construction status of the project and the pending receipt of open access approval. Nonetheless, comfort is drawn from the availability of 94% of the required land as of March 2024 with the balance land to be acquired shortly, the advance progress in construction of the transmission line and pooling substation and the track record of the Group in developing solar power project transmission lines. The company expects to commission the full project capacity by May 2024. The Ministry of New & Renewable Energy (MNRE) has recently notified the re-imposition of the ALMM regulation1 effective April 1, 2024. ICRA will continue to monitor the developments with respect to any adverse impact for the project being developed. ICRA further notes that 46% of the modules were installed at the site as on March 26, 2024. The company has sourced the modules from Jinko Solar and Solarspace. ICRA continues to take comfort from the company’s strong parent, which is expected to extend the necessary support in case of any adverse developments. The company has secured project debt at a competitive cost with a long tenure of 19 years, which is expected to lead to comfortable debt coverage metrics over the debt tenure. Post commissioning, the company’s cash flows and debt protection metrics would remain sensitive to its generation performance, given the single-part tariff under the PPAs. This constraint would be amplified by the geographic concentration of the asset. Any adverse variation in weather conditions and equipment performance can impact the generation levels and consequently the cash flows. The lender can exercise the option to call back the loan at the end of 12 years which will expose the company to refinancing risk. The demonstration of generation performance in line or above the appraised P-90 PLF levels remains a key credit monitorable. ICRA notes that the termination payments under the PPAs cover the entire debt outstanding. Further, comfort can be drawn from the competitive tariffs offered by the company to its customers against the HT industrial grid tariff and the track record of the sponsor in securing PPAs with large industrial and commercial customers. The company is also exposed to interest rate risks because of the leveraged capital structure and floating interest rate, subject to regular resets. Further, the company’s operations remain exposed to the regulatory risks associated with forecasting & scheduling regulations, regulations for captive projects and open access charges. Any significant increase in the open access charges or imposition of new charges would impact the competitiveness of the tariff offered under the PPAs. The Stable outlook on the [ICRA]A rating reflects ICRA’s opinion that AMGPL would benefit from the long-term PPAs for its portfolio with reputed customers and the track record of the Group in developing and operating solar power projects.