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July 13, 2024

Moody’s Ratings and ICRA: Strong Demand Drives Robust Investment in India’s Energy Transition and Transportation

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Moody’s: Solid growth in India’s renewable energy capacity will continue, with the sector requiring up to $215 billion of investment over the coming years to meet transition targets

·       ICRA: India’s roads, ports and airports will benefit from strong policy support, increased capital outlays and a sizable pipeline of projects

Moody’s Ratings (Moody’s) says that India’s infrastructure companies will be spending on energy transition to meet demand resulting from the country’s relatively strong economic growth. However, government policies and stable regulatory frameworks will support credit quality.

Moody’s estimates that India’s target of 500 gigawatts (GW) of renewable energy capacity by 2030 will require $190 billion-$215 billion of investment over the next seven years, while another $150 billion-$170 billion of investment will be required for electricity transmission and distribution as well as energy storage.

“The sizeable pipeline of announced projects will keep the financial leverage of renewable power companies rated by Moody’s high over the next 2-3 years – a credit negative – but the leverage of government-related issuers will remain moderate over the same period, given their relatively strong balance sheets,” says Abhishek Tyagi, a Moody’s Vice President and Senior Credit Officer.

“We expect the strong growth in India’s renewable energy capacity to continue, although coal will remain a major source of electricity generation over the next 8-10 years,” adds Tyagi.

Strong policy support has helped India increase the share of renewable energy in its power capacity mix to around 43% in fiscal 2023, which ended March 2023, and fiscal 2024. Continued policy support will help the country make significant progress toward its 2030 transition targets and 2070 net-zero goals.

Paving the way: Roads and ports get investment boost, says ICRA

Meanwhile, ICRA, an affiliate of Moody’s in India, forecasts increased spending on transportation infrastructure projects, including on roads, ports and airports over the coming years, benefiting from solid government support, rising capital outlays and a large pipeline of projects.

ICRA expects India’s government to maintain a strong focus on road sector investments through increasing capital outlays. The Ministry of Roads, Transport and Highways’ (MoRTH) budgetary allocation for the sector has increased by more than 8x over the past decade to INR2.7 lac crore in fiscal 2025, reflecting a 22% compound annual growth rate.

“India’s road construction will likely grow 5%-8% to 12,500 km-13,000 km in fiscal 2025, following a robust expansion of around 20% in fiscal 2024. This pace of execution will be supported by a healthy pipeline of projects, increased government capital outlay and greater focus on project completion by MoRTH,” says Girishkumar Kadam, ICRA’s Senior Vice President and Group Head, Corporate Ratings.

The government has also planned a large capex under its Maritime India Vision 2030 to augment port capacity and infrastructure over the next decade. This could bring about supply-demand mismatches in a few clusters, resulting in increased competition and pricing pressure for ports. ICRA expects cargo volumes to grow 6%-8% in the current fiscal year on the back of healthy growth in the container and coal segments, although lower trade volumes driven by slowing global economic growth and geopolitical tensions remain key risks.

Investments in airport infrastructure will also remain healthy at around INR55,000 crore-INR60,000 crore of committed capex over the next 3-4 years channeled toward projects including new greenfield airports, brownfield development and airport expansions under the Airports Authority of India.

Overall passenger traffic at airports will likely grow at a healthy 8%-11% to around 407 million-418 million passengers in fiscal 2025 from fiscal 2024, supported by a strong pickup in leisure and business travel, better connectivity to newer destinations in the domestic segment and the continued uptick in international travel.

ICRA also expects rapid digitalization along with favorable policy measures and cost competitiveness to support large investments in data centers, estimated at about INR1.5 lac crore over next 5-6 years. However, lumpy capacity additions and increasing competition will moderate returns for companies.

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