The prices of imported photovoltaic (PV) module have been rising over the last three to four months, increasing by about 15 per cent from about $30-32 cents/watt in May 2017 to about $35-37 cents/watt in August 2017.
This may impact the recently bid solar projects where bid tariff was below ₹3.5 per unit, ICRA analysts said.
“Such pricing pressure, if sustained over the next three to six month period, will adversely impact the viability of recently bid solar power projects,” said Sabyasachi Majumdar, Senior Vice-President & Group Head, ICRA Ratings.
According to the agency, the solar PV energy project capacity awarded with such tariff stood at 3250 MW as on August 2017.
Out of this, 750 MW bid capacity has tariff below ₹3 per unit (varying between ₹2.44 and ₹2.65 per unit) while the balance 2500 MW capacity has tariff varying between ₹3.15 and 3.47 per unit.
ICRA estimates that for a solar power project with tariff of ₹2.5 per unit, the 6 per cent/watt increase in the PV module price may result in an increase of about 11 per cent in the capital cost, which in turn could lead to a decline in cumulative average debt service coverage ratio (DSCR) by 0.12 times and to decline in project internal rate of return (IRR) by 180 basis.
Hence, the viability of solar power projects with tariffs below ₹3.5 per unit remains critically dependent upon ability to source modules within budgeted cost along with availability of long tenure debt at cost competitive rate, the agency notes.
According to Majumdar, not only future but the ongoing projects could experience implementation delays and cost escalations in case of delays in solar modules’ delivery schedule and probable dishonouring of price terms agreed earlier by Chinese suppliers.
“Given the present circumstances, where attempts are being made for PPA renegotiation or cancellation by distribution utilities in few states, any project execution or completion delay by the developers beyond the scheduled completion date as per PPA is a critical risk factor,” Majumdar adds.
Industry assumptionsThe prices of solar modules have reduced by around 30 per cent in the past one year and industry anticipates another 10-15 per cent reduction in the coming year. These assumptions have played a major role in the solar tariffs dipping to the historic low of ₹2.44 per unit in May 2017.
However, as BusinessLine reported earlier, that the prices of solar modules imported mainly from China have been rising in past two-three months — the trend industry players considered to be a temporary one, caused by global trends such as revival of solar programmes in China and extension of feed-in tariff regime for solar power projects there as well as growing demand for solar modules in the US.
Experts’ concerns over the sustainability of recent solar bids in the view of rising prices of Chinese modules come at a time when the Indian domestic solar manufacturing industry is lobbying for an anti-dumping duty on solar inputs from China, Malaysia and Taiwan.
The matter is currently with Directorate General of Anti-Dumping.