High Module Prices To Impact Project Returns In India

• Credit ratings agency ICRA believes Indian solar project costs may go up further if the current high module prices continue to sustain
• Maximum impact is likely to be felt by around 4 GW PV capacity awarded under competitive auctions over last 9 months
• High module prices, increasing metal prices and BCD impact may lead to overall bid tariff to go up by about INR 0.55 per unit to INR 0.60 per unit, but still under INR 3.00 per unit
• Before BCD comes into effect from April 2022, module price behavior and honoring of supply contracts by module OEMs from China in the near term will be key monitorables for solar power developers

High demand for solar polysilicon over past few months has been pushing up prices for the end product, solar modules. Project developers in India are also feeling the heat since the market is heavily dependent on imported modules. If this situation sustains and module prices 'harden', it will increasingly impact project returns for developers, according to credit ratings agency ICRA Limited.

Overall capital cost of projects is also going up with high metal prices, it added.

A Moody's company, ICRA calculates imported module prices to have gone up by about 15% to 20% over the last 4-5 months to costing around $0.22 to $0.23 per W, as on June 15, 2021. It believes the maximum impact will be felt by close to 4 GW PV capacity won by developers under competitive auctions over the last 6 to 9 months for winning tariffs of INR 2.00 – 2.25 per kWh. These projects are required to come online within the next 15 months.

"Alternatively, the tariff increase required to offset such a module price increase is estimated at about INR 0.20 to 0.22 per 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 INR 0.55 to 0.60 per unit for the forthcoming auctions," explained Girishkumar Kadam, Senior Vice President & Co-Group Head-Corporate Ratings, ICRA. Yet he believes the tariffs are still likely to remain below Rs. 3.00 per unit.

BCD is set to be imposed on imported cells and modules from April 2022 (see India Imposes Basic Customs Duty On Cells & Modules). Developers are expected to make a run for modules especially during Q4/2022 which might sustain higher prices. "In this context, both the module price behavior and honoring of supply contracts by module OEMs from China in the near term continue to remain key monitorables for the solar power developers," it cautions.

As per the Indian government, for projects bid out post April 10, 2021 will need to procure modules from the Approved List of Models and Manufacturers (ALMM) (see India PV News Snippets: MNRE, Borosil, GUVNL, PGCIL). However, with COVID-19 phase II related restrictions in place among other factors, registration of module manufacturers from outside India was impacted. This, in turn, is likely to create challenges for module procurement by developers.

Despite these near-term challenges, ICRA analysts see healthy visibility on capacity addition over the medium term since the country's cumulative project award capacity adds up to 28 GW. ICRA's Vice President & Sector Head Corporate Ratings, Vikram V said this excludes capacity pending for signing of power sale agreements (PSA), power purchase agreements (PPA), and hybrid projects.