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Elevated PV module, cell prices pose cost pressures for solar power developers: ICRA

NEW DELHI : The elevated solar photovoltaic cell and module prices are contributing to the cost constraints facing the solar power developers, even as the supply chain issues are beginning to ease, said a report by ICRA.

The cost of solar PV modules (Mono PERC) has climbed-up by over 40% in the past 18 months. This was mainly driven by the disruption in operations across the value chain of the solar PV module manufacturing in China and the spike in the cost of polysilicon, a key input for module producers.

Girishkumar Kadam, Senior Vice President & Co-Group Head - Corporate ratings, ICRA, said: “The increase in solar PV cell & module prices along with the imposition of basic customs duty (BCD) on imported cells & modules is leading to cost pressure for solar power projects awarded over the last 12-18 months.“

“While the bid tariffs have increased from the lows of Rs. 1.99 per unit in Dec’20 to Rs. 2.2-2.5 per unit, the extent of the increase in bid tariffs remained lower than what ICRA estimates is necessary to mitigate the increase in module prices. The risk of moderation in returns is significant for projects aggregating to 4.4 GW awarded over the past 18 months, wherein the tariffs are below Rs. 2.2 per unit," Kadam said.

As modules are required to be sourced from domestic OEMs under the ALMM notification for projects awarded post-April 2021 and as majority of the domestic OEMs do not have backward integration beyond cells, the dependence on wafer/cell imports is likely to continue over the medium term.

As a result, the pricing trend for polysilicon and wafers/cells internationally would remain a key monitorable for solar power developers in India. Considering procurement of modules from domestic manufacturers as required under ALMM notification and use of imported cells by such manufacturers, an increase of 1 cent in cell prices would require a 5-6 paise per unit increase in bid tariffs in order to maintain the same level of returns, it said.

Vikram V, Vice President & Sector Head – Corporate ratings, ICRA, said, “Given the fixed and single part tariff under the PPAs for solar power projects, the uptrend in interest rates remains a challenge for the developers and would put upward pressure on the bid tariffs. An increase of 150 bps in the interest rate scenario is estimated to lead to an increase of upto 20-paise increase in the bid tariff, assuming the other factors remain the same.“

“Nonetheless, despite the cost headwinds, the tariff rates for solar power projects are likely to remain highly competitive from the perspective of the state distribution utilities in relation to the marginal cost of procurement from thermal stations that are at the bottom 25% of the merit order dispatch, wherein the variable cost of procurement is more than Rs. 3.0 per unit across key states."

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