ICRA predicts 4.5 GW solar capacity addition in India in FY2019

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Going by the tendering and award of solar projects in last 12-15 months’ period, a 40% decline of about 4-4.5 GW of solar capacity addition is expected in FY2019 as compared to FY2018. As per an ICRA note, this mainly comprises of the projects having PPAs with utilities.

Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings said, “The estimated fall in capacity addition in FY2019 is mainly on account of subdued trend in tendering of solar projects since June 2017 in the midst of several factors such as GST roll out in July 2017, an upward pressure on PV module price levels internationally and continued uncertainty on safeguard duty & anti-dumping duty post the petitions filed by solar module manufacturer associations between June and Dec 2017. Subdued trend in award of solar projects is also evident from the fact that only 4.5 GW capacity was auctioned and awarded in CY2017 as against 7.3 GW in CY2016.”

With the recent amendment in bidding norms for solar projects by the Ministry of New & Renewable Energy (MNRE), Government of India, there is now clarity on pass-through of import duty and other such duty under “change in law” which is a positive for the solar developers. However, the quantification of actual tariff changes by SERCs and the timeliness of the same will remain critical from the cash flow perspective of the affected developers. Moreover, the retrospective applicability of such duty under the change in law remains critical for projects which have been recently awarded in bidding route from the viability perspective of such projects.

Further, with an expected decline in PV module price level, long-term debt availability at cost competitive rate and aggressive bidding by IPPs, weighted average solar bid tariff during CY 2017 declined sharply to Rs3/unit from Rs5/unit in CY 2016.

“Though the declining solar bid tariffs levels remain favourable to state-owned distribution utilities, the hardening of module prices over the last 6-9 months’ period along with import duty incidence on module imports (to the extent of 7.5% since Oct 2017) has led to viability related concerns especially for the projects with tariff below Rs3/unit, also given the uncertainty on safeguard duty front,” says Kadam.

In this context, the viability of such tariffs critically hinges on the structuring of debt with longer tenures, competitive funding costs and the ability of the project developers to keep the cost of modules within the budgeted levels.

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