According to ICRA, the cost pressure is being created by the increase in solar PV modules and solar cells prices as well as the introduction of the Basic Customs Duty (BCD), effective April 1, which will result in solar power projects aggregating 4.4 GigaWatts (GW) according to ICRA.
These are projects that were awarded in the past 12-18 months, according to the rating agency.
The price of solar PV modules (mono-PERC) has increased by more than 40% to USD 27-28 cents per watt over the past 18 months. This is primarily due to disruptions in production in China, and an increase in the cost polysilicon, which is a key input for module manufacturers.
Icra reported that the cost pressure on projects exceeding 4.4 GW is severe. This represents around 12 percent of all projects currently under execution in the country.
Girishkumar Kadam (Senior Vice President & Co–Group Head – Corporate Ratings at Icra) stated that the price rises in solar PV cells and module prices, along with the imposition BCD on imported modules, are creating cost pressure for solar power project awards over the past 12-18 months.
The government announced last year that it would impose a 40 percent BCD on solar module and a 25 percent on solar cell production. This will take effect on April 1, 2022.
Kadam stated that although the bid tariffs increased from Rs 1.99 per unit in December 2020 to Rs 2.2-2.25 per unit, it was still less than what Icra estimates necessary to offset the rise in module prices.
He said that projects aggregating up to 4.4 GW and where the tariffs are less than Rs 2.2 per unit pose a significant risk of moderation in return.
ICRA states that modules must be sourced from domestic OEMs under the ALMM notification for projects granted after April 2021. The majority of domestic OEMs don’t have backward integration beyond cells. This means that the dependence on cell imports and wafers will likely continue in the medium term.
RK Singh, Union New and Renewable Energy Minister, recently stated that there is no plan to review the BCD imposed on solar cells and modules.
“I don’t want any Chinese imports, and want everything Made In India.” He stated that the duty has led to an increase in the domestic manufacturing capacity for modules and cells.