On January 1, 2018, Indian rupee's exchange rate against the US dollar was INR 63.88. It has only fallen from thereon, standing today at around INR 73.48. This depreciation in rupee has made imported solar modules costlier and increased the cost of setting up a solar power plant in India. Analytics firm CRISIL cautions that this threatens the viability of 5.5 GW of solar power capacity worth INR 280 billion ($3.8 billion).
The 5.5 GW comprise nearly half of the solar power capacities under implementation, the projects that were bid out in the last 9 months for a tariff of INR 2.75 ($0.037) per kWh or less. Orders for solar modules are generally placed 9 to 12 months after a developer wins the bid. CRISIL points out that this 5.5 GW project capacity is in the early phase of implementation and wouldn't have yet placed the module orders.
"Solar modules account for 55% to 60% of the project cost of a solar plant, which is typically INR 50 million ($0.68 million) per MW," said Subodh Rai, Senior Director, CRISIL Ratings. "Today, over 90% of them are imported. Our analysis shows that for every 10% drop in the rupee, the cost of setting up a solar power plant increases by INR 3,000,000 per MW, assuming other factors remain unchanged."
What has worked in favour of the developers is the fall in module costs by as much as 17% from $0.30 per W at the time of bidding to around $0.25 per W currently. But, developers obviously did not predict the sharp depreciation in the rupee which, according to CRISIL, has 'wiped off the gains from lower module prices'. It says this will compress the debt servicing cushion available for these projects.
The problems don't end here as there is the danger posed by safeguard duty implementation with effect from July 30, 2018, which will further shoot up project costs by as much as 20%, and take up viable tariff for future projects by INR 0.30 per kWh. Electricity distribution companies (discoms) would not want to buy renewable power at higher tariffs, endangering the government's 100 GW of solar power capacity target by 2022, said Manish Gupta, director of CRISIL ratings.
Any project with a tariff of less than INR 3.00 ($0.041) per kWh will not be readily acceptable by lenders due to their 'slim debt service parameters', it warns.
These factors will leave the market only for developers with deep pockets who could manage the risk by prudently funding projects with lower external debt and bring efficiencies in operation and maintenance cost per MW because of scale and ability to negotiate with vendors.
In August 2018, CRISIL warned that the country will not be able to achieve its of 100 GW solar power target by 2022 and will have to settle for 78 GW to 80 GW (see CRISIL: India To Reach Only 80 GW PV By 2022).