High Prices To Impact 5 GW Solar In India

• CRISIL analysts expect 5 GW of solar power capacity bid out between October 2020 and December 2021 to see their return on equity dropping by around 7%
• These projects form part of 25 GW capacity that was bid out at tariffs less than INR 2.35 per kWh; remaining 20 GW is likely to be saved with comparatively higher tariffs and partial cover on cost of modules
• They count higher prices for solar modules, related components and logistical challenges as culprits
• Solar companies can partially deal with the challenge with better module efficiency, seeing corporate interest in solar as an additional revenue stream and lower cost of debt

S&P Global's Indian credit ratings agency CRISIL counts soaring prices of solar modules, related components as steel and freight costs to negatively impact 5 GW capacity in India that were bid out at less than INR 2.35 ($0.030) per kWh between October 2020 and December 2021.

This is part of 25 GW bid out during this time period when module prices were 'softening' and commodity prices 'benign', and analysts believe the return on equity (RoE) for the 5 GW capacity is likely to fall by as much as 140-180 basis points to around 7%.

By way of comparison to show the rise in prices, CRISIL says from $0.21 module cost in January 2021 and February 2021, spot prices went up to $0.28 per kWh by April 2022. They warn prices to remain at this elevated level throughout 2022 driven by strong global demand and continued supply disruptions in China where COVID-19 and extended lockdowns remain a challenge.

To help counter these high price levels partially, analysts state 3 factors that can partially offset the loss on return while adding the disclaimer that RoE remains sensitive to further rise in module and commodity prices due to geopolitical or supply chain disruptions. The 3 factors are:

1. Better module efficiency: Higher generation per unit of cost for bifacial and mono-PERC modules compared to poly or multicrystalline panels that contribute to P50 plant load factors (PLF) by around 1.5%.
2. Carbon Credit Certificate revenue stream: Corporate focus on Environmental, Social and Governance (ESG), especially for oil, mining and energy companies in Europe, North America and Australia has opened up a new revenue stream for solar companies in the form of merchant market for carbon credits via power purchase agreements (PPA).
3. Lower cost of debt: CRISIL estimates benefit in reduction in net interest cost compared to the start of fiscal 2021 to be a helpful element.

"The remaining ~80% of projects under implementation (~20 GW) will also be hit, but their comparatively higher tariffs and partial cover on cost of modules will limit the impact to 60 – 80 basis points," explains Senior Director CRISIL Ratings, Manish Gupta. "Most of these projects are in advanced stages of implementation and have imported or tied up some proportion of modules at prices below the current level."