Increase in imported photovoltaic (PV) solar module prices by about 15-20% over the last 4-5 months to around 22-23 cents/watt is likely to impact returns of solar power project developers.
This price rise has been mainly driven by a sharp increase in the price of polysilicon, a key input for cell and module manufacturers, according to ICRA.
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Given the import dependency for PV modules for a majority of the solar power installations in India, such hardening in the price, if sustained, remains a near-term headwind. This risk is especially significant for the capacities won by developers through the bidding route over the last six to nine months (amounting to 4 GW) at tariffs ranging largely between ₹2 per unit and ₹2.25 per unit and scheduled to be commissioned over the next 12-15-month period.
This apart, the recent surge in metal prices is also leading to upward pressure on the overall capital cost for solar power projects.
Moderation of debt service coverage
Girishkumar Kadam, Senior Vice-President and Co-Group Head- Corporate ratings atCRA, said, “Given that the PV module component comprises about 50-55% of the overall project cost, such increase in the module price level by about 4-5 cents/watt, if sustained, is likely to moderate the debt service coverage metrics for the project developers by about 12-14 basis points.”
“Alternatively, the tariff increase required to offset such a module price increase is estimated at about 20-22 paise/unit. This, along with the impact of the basic customs duty (BCD) on imported PV modules, is likely to result in the overall bid tariff to increase by about 55-60 paise/unit for the forthcoming auctions. Nonetheless, the solar bid tariff, after factoring in this dual impact, is still likely to remain below ₹3/unit,” he said.
As the BCD notification for cells and modules is effective from April 2022 onwards, there remains a possibility for a surge in demand for imported modules, particularly in the fourth quarter of the current fiscal, in turn, supporting the elevated price levels for PV modules. In this context, both the module price behaviour and honouring of supply contracts by module OEMs from China in the near term continue to remain key monitorables for the solar power developers.