‘Rising Chinese module prices a challenge for India’s solar industry’

This may be a new challenge for the Indian solar industry. Will solar power tariffs, which have headed sharply lower to hover around Rs.2.50 per unit in the recent past, rise again?

This price fall was based on the corresponding fall in the price of Chinese modules. It may no longer be so.

After falling by nearly 5 per cent in the second quarter of 2017, for the first time in years, the average selling price (ASP) of Chinese modules is increasing quarter-over-quarter in India, rising by almost 12 per cent as of August 2017 compared to Q2 2017. By comparison, module ASPs have dropped by 12 per cent from Q2 2016 to Q3 2016, according to a report by Mercom India.

“This is the worst-case scenario that Mercom has been warning the market about. For the past two years, we have stressed that aggressive bidding in an effort to capture market share, with the assumption that component costs will continue to fall no matter what, is a risky strategy,”

Developers in India and overseas have been modelling their auction bidding strategies based on the assumed perpetual decline of Chinese module prices. It has worked for a majority of the time, and developers have become too ‘comfortable’ with this strategy resulting in aggressive bidding in India, which has reached new heights with government agencies cheering the low bids as an incredible achievement, it said.

Short-term fluctuations do not usually make a huge difference, but, if module prices continue to rise or even stay flat for a couple of quarters, it will start hurting developers, who cannot wait indefinitely to procure the lowest priced panel.

The price drop was steeper than expected in Q2 2017, even though high Chinese demand generally firmed up module prices in June before feed-in tariff deadline at the end of the month.

Among the driving factors are a 19 per cent increase in polysilicon prices since June and also that of wafers, though it has started to flatten out over the last couple of weeks. A major producer reduced its polysilicon and wafer production significantly due to technical and maintenance issues resulting in some wafer shortages, pushing wafer prices higher, the report said.

This scenario is challenging for the Indian solar industry and comes at a bad time. The industry is also facing an antidumping case filed by Indian manufacturers, for which the Directorate-General of Anti-dumping and Allied Duties (DGAD) is expected to recommend a decision around September 22.

According to the Q2 2017 Mercom India Solar Quarterly Update, developers were expecting module prices to be in the $0.285 (~₹18.35)/W range in Q3 2017 (almost 20 per cent less than current Q3 prices) and to fall further to the $0.27 (~₹17.39)/W range in Q4 2017. Developers have been modelling their auction strategies around these projections.

Considering the uncertainty, it does not make sense for developers to participate in future auctions until there is more clarity on module prices.

Either way, the industry can expect some turbulence ahead and the lingering situation caused by these cases is likely to further slowdown auction activity in the short term and pose procurement challenges for Indian developers if prices don’t reverse in a few months, the report added.

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