No More Cheap Modules From China: Gloomy Days Stare At Indian Solar Projects
The price of the photovoltaic (PV) module which marks almost 70% of a solar project’s cost, has shown an upward trend over the last three to four months
Photo Credit :
The viability of the record low solar tariff bids have come under the radar as one of the key cost components responsible for these low bids, is set to rise.
The price of the photovoltaic (PV) module which marks almost 70 per cent of a solar project’s cost, has shown an upward trend over the last three to four months, increasing by 15 per cent, from 30-32 cents/watt in May 2017 to 35-37 cents/watt in August 2017.
It was at the time when the average selling price of the solar modules stoops low, the developers were able to bid for record low tariffs as witnessed in Badla or Rewa projects. Since 70 per cent of the solar module requirement in the country is imported from China, this prise rise poses a major challenge for Indian solar industry and cheap clean energy tariffs.
“Such pricing pressure, if sustained over the next three to six month period, will adversely impact the viability of recently bid solar power projects, where bid tariff is below Rs 3.5/unit. Further, any delays in delivery schedule and/or dishonoring of price terms agreed earlier by Chinese OEMs to the Indian independent power producers (IPPs) having solar power projects under implementation, may lead to risk of delays along with cost over-run,” says Majumdar, Senior Vice President & Group Head, ICRA Ratings.
As per the rating agency’s estimates, a 6 cent/watt increase in the PV module price is estimated to increase the capital cost by 1 per cent. This, in turn, could reduce the debt service coverage ratio (DSCR) by 0.12 times and further fall in the project’s internal rate of return (IRR) which is already squeezed for the majority of the projects.
If the Chinese module price fluctuation is short lived, it might not make a huge difference. However, if module prices continued to rise or even stay flat for a couple of quarters, it will start hurting the developers who cannot wait indefinitely to procure the lowest priced panel.
The majority of the solar bids were termed ‘Aggressive’ by the experts, in order to capture market share. Their bidding behaviour was backed on the assumption that the component costs will continue to fall no matter what is a risky strategy.
“Developers not just in India, but across the world have been modelling their auction bidding strategies based on the assumed perpetual decline of Chinese module prices. It has worked for the majority of the time, and developers have become too ‘comfortable’ with this strategy resulting in aggressive bidding in India”, says Mercom.
The price drop was steeper than expected in Q2 2017, even though high Chinese demand generally firmed up module prices in June before feed-in tariff deadline at the end of the month.
According to Mercom’s Quarterly report, the developers were expecting module prices to be in the range $0.285 (Rs 18.35)/Watt in Quarter 3 of 2017 (almost 20 percent less than current Q3 prices) and to fall further to the $0.27 (Rs 17.39)/Watt range in the next quarter. Due to this anticipation, the developers have been modelling their auction strategies around these projections.
Given the over dependence of the Indian solar industry on imported cheap Chinese modules, this price trend reversal poses a huge viability question of the solar projects in India.
“Considering the uncertainty, it does not make sense for developers to participate in future auctions until there is more clarity on module prices. Either way, the industry can expect some turbulence ahead and the lingering situation caused by these cases is likely to further slowdown auction activity in the short term and pose procurement challenges for Indian developers if the prices don’t reverse in a few months”, says the report.