Solar Module Price Hike To Affect 4.4 GW Of Solar Revenue in India

Driven by polysilicon prices, solar cell and module prices in India have risen by more than 40% in the last 18 months. However, tender tariffs are still below the levels needed to ease the upward pressure on PV module prices. As a result, projects with a total capacity of 4.4 GW awarded in the last 18 months at tariffs below INR 2.2 (USD 0.028)/kWh are at significant risk of low yield.

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The latest ICRA report shows that despite supply chain issues beginning to ease, solar developers in India are still facing cost pressures due to rising cell and module prices.

Over the past 18 months, monocrystalline PERC module prices have risen by more than 40 per cent to $0.27 to $0.28 per watt. This is mainly due to operational disruptions in the Chinese solar value chain and soaring costs for polysilicon - a key raw material for module manufacturers.

In addition, higher solar PV cell and module prices and the imposition of a basic customs duty (BCD) on imported cells and modules have also put cost pressure on solar projects awarded in the last 12 to 18 months.

While the bid tariff has increased from INR 1.99/kWh in December 2020 to INR 2.2 to 2.5/kWh, this increase is still below the level that ICRA estimates is required to mitigate the upward pressure on module prices," said Girishkumar Kadam, senior vice president of ICRA. Projects awarded in the last 18 months with a cumulative capacity of 4.4 GW and tariffs below INR 2.2/kWh are at significant risk of yield reduction."

Projects awarded after April 2021 must source components from domestic manufacturers on the Approved List of Models and Manufacturers (ALMM). And as most domestic manufacturers do not have the ability to reverse integrate beyond cells, they are likely to remain dependent on imported wafers and cells in the medium term.

International pricing trends for polysilicon and wafers/cells will therefore continue to be something that Indian solar developers will be watching closely, ICRA said, adding that since the ALMM notification requires sourcing of modules from domestic manufacturers who use imported cells, every US$0.01 increase in cell prices will require a 5 to 6 paisa/kWh increase in the bid tariff to maintain the same level of revenue.

For developers, the upward trend in interest rates will also remain a challenge given the fixed unitary tariff under the power purchase agreement for solar projects, which will put additional upward pressure on the bid tariff. .

He said that despite the cost disadvantage, the national distribution utility's solar tariff remains highly competitive compared to the marginal cost of sourcing from thermal plants - the last 25 per cent of the priority generation dispatch order. The variable cost of sourcing from these coal-fired power plants exceeds INR 3.0/kWh in the major Indian states.