Viability of lower solar tariff to depend on PV module prices, pass-through of duty: ICRA

Our Bureau Hyderabad | Updated on July 09, 2020 Published on July 09, 2020

Sourcing issues, geopolitical risk are key variables to be monitored

The tariff discovered in the recently concluded tranche IX auction for inter-State transmission systems (ISTS) solar projects by Solar Energy Corporation of India (SECI) is lower at ₹2.36/Kwh, than the tariff of ₹2.44/Kwh discovered in May 2017.

As per an ICRA note, the lower tariff is driven by a fall in the global solar module prices caused by the lull in demand owing to the Covid-19 pandemic which coupled with other factors could impact viability of the solar tariffs as these are critically dependent on PV module price level and INR-USD exchange rate, besides the availability of long tenure debt at a cost competitive rate.

Sabyasachi Majumdar, Group Head and Senior Vice-President, ICRA Ltd, says, “Further, the viability aspect remains extremely crucial, given the possibility of trade restrictions with China in the near term which could impact the module availability at competitive prices. Also, a timely pass-through of increase in project cost due to imposition of basic customs duty, if any, on the imported modules remains critical, given that the notification of such duty is still not in place.”

The safeguard duty imposed on imported modules, currently at 15 per cent is about to expire in July 2020 and the government is likely to impose basic customs duty (BCD) from August 1, 2020 onwards.

The Indian solar sector has largely been dependent on China for procurement of solar modules.

However, the sourcing of solar PV modules for under-construction solar projects as well as procurement of raw materials for domestic solar module manufacturing OEMs, especially from China could be a challenge, given the backdrop of increasing geopolitical risks between India and China.

“In such a scenario, the cost of import of such modules/components from alternative destinations including that of sourcing from the domestic module manufacturers, remains a key monitorable from the viability perspective for the under-construction solar projects in the near to medium term,” says Girishkumar Kadam, Sector Head and Vice-President, ICRA.

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Published on July 09, 2020
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