By 2022, India hopes to have the world’s largest clean energy program, with 175 GW of renewable energy capacity, including 100 GW of solar energy. The country’s electricity demand will reach 817 GW by 2030, with sustainable energy accounting for more than half of the total, with solar accounting for 280 GW.
Cost reduction, which has helped solar power become the world’s fastest-growing energy source, has recently hit a hitch due to recent hikes in solar module pricing. Prices of solar modules have risen by 18% since the beginning of 2021, after falling by 90% over the previous decade.
A spike in solar PV module prices may affect the value of projects awarded over the last six to nine months. Beginning April 1, 2022, the government plans to impose a 40% BCD on solar modules and a 25% BCD on solar cells. This is one of the first steps toward the capacity obtained by developers through the procurement process over the previous six to nine months, with units slated to be commissioned over the next 12 to 15 months at pricing ranging mostly between INR 2.00 ($0.03) and 2.25 per unit (kWh).
The increase is mostly due to a large increase in the price of polysilicon, a critical input in the production of cells and modules. Metal costs have recently risen, placing downward pressure on the entire capital cost of solar power plants. Chinese module makers have recently increased their prices by more than a fifth and have begun canceling equipment contracts.
The price increase is mostly owing to a considerable increase in the price of polysilicon, a critical input in the manufacturing of cells and modules. Metal costs have recently risen, placing downward pressure on the entire capital cost of solar power systems. Chinese module makers have recently increased their costs by more than a fifth and have begun canceling equipment contracts.
Imports are primarily reliant on PV modules for the majority of solar power installations in India. As a result, if PV module prices continue to climb, it will be a headwind shortly. It has a substantial impact on solar projects in two ways: it pushes them past their deadlines and hinders the uptake of solar power at a time when many major economies are beginning to acknowledge the role of solar electricity in combating climate change.
PV module components account for around 50% to 55% of total project costs. As a result, a persistent increase in module prices of roughly 4% to 5% per watt will affect project developers’ debt payment coverage criteria by 12 to 14 basis points. To compensate for such a module price increase, a tariff hike of 20 to 22 paise per unit is expected. Because of the impact on imported PV modules, the overall bid tariff for the next auctions is projected to rise by roughly 55 to 60 paise/unit. The solar bid pricing is expected to remain below INR 3/unit after accounting for the dual impact.
Both the module price behavior and the fulfillment of supply contracts by Chinese module original equipment manufacturers (OEMs) will continue to be crucial determinants for solar power providers as the notification for cells and modules takes effect in April 2022. The considerable ambiguity around the deadlines for including Chinese module providers on the Approved List of Models and Manufacturers (ALMM) may have an influence on incremental bidding activity in the solar power sector.
Solar panels have become more expensive, and investment returns may decrease as a result. Because 85 percent to 90 percent of solar modules used in India are imported from China, this significant increase in prices has frightened developers who have won projects that have yet to be commissioned.
Modules make up a large portion of a project’s total costs, and because IPPs in the Indian solar energy sector has lower margins, even a small increase in module pricing will put them under more pressure. The increase in module costs has an effect on the internal rate of return for projects that have already signed a power purchase agreement. Large-scale projects that have yet to negotiate PPAs with utilities may face delays unless customers are willing to pay a higher electricity tariff.
The shortage of polysilicon is predicted to endure at least through the first half of 2022. Other raw material prices are also rising, such as silver and glass, affecting the entire ecosystem.
All of the projects’ feasibility will be a big concern. Depending on the number of days they get to work after receiving the panels, about half of the projects will be able to stay afloat. Large project developers are having a hard time keeping their projects profitable after purchasing panels in the final phase of development, which is 10 to 12 months after signing the PPA. Steel costs have risen dramatically, and the uncertainty regarding safeguard duty has added to their anguish.
The recently developed Production Linked Incentive (PLI) scheme will increase the availability of solar panels in India, lowering project costs in the future. Distribution businesses are in financial trouble, and tariff increases are few and insufficient. As a result, most private players can no longer rely solely on electricity markets to make money. They must rely on liquidity injections from programs like UDAY (Ujwal DISCOM Assurance Yojana) and organizations like Power Finance Corporation Ltd on a regular basis. Scale and sprawl arise as a result of the inability to predict where the next subsidy will come from.
Large firms integrate vertically to ensure that they are among the recipients of any subsidies. Because it is impossible to forecast where the next subsidy will come from, scale and sprawl develop. Large corporations integrate vertically to ensure that they are one of the beneficiaries of government subsidies wherever they occur. Solar companies can use this to keep the rest of the power business afloat as long as some arm of the Indian state is paying or infusing liquidity.
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