Expect Tariff Hike by 20-25 Paise/Unit in Upcoming Solar Bids: ICRA

Highlights :

  • The increase in module prices and the recent hike in GST rate for solar power equipment from 5% to 12% is likely to increase the tariffs in the forthcoming solar bids by ~20-25 paise per unit from the levels seen over the past six months.
  • Nonetheless tariffs are likely to remain competitive at less than Rs. 3.0 per unit.

The increase in module prices and the recent hike in GST rate for solar power equipment from 5% to 12% is likely to increase the tariffs in the forthcoming solar bids by ~20-25 paise per unit from the levels seen over the past six months, finds a new ICRA report.

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Nonetheless tariffs are likely to remain competitive at less than Rs. 3.0 per unit, states the Indian Renewable Energy Sector, October 2021′ report, explaining, “solar power tariffs even after BCD impact to remain well below Rs. 3/unit; wind tariffs remain below Rs.3.0 per unit; competitive against marginal cost of generation from thermal sources.” So from the perspective of ultimate off-takers i.e. state discoms, solar power tariffs would remain cost competitive.

The price of imported Mono PERC PV modules in India have increased by over 35% from 19-20 cents/watt in December 2020 to 22-23 cents per watt in June 2021 and further to 27-28 cents per watt in October 2021. This, the report notes, is mainly driven by an increase in the polysilicon prices, a key input for PV modules along with the recent supply-side disruptions in China.

The disruption in manufacturing operations across the value chain of solar PV modules in China owing to the prevailing power cuts is leading to elevated price levels for solar PV cells and modules. Given the likely continuation of these power cuts amid the emission control targets in China, the prices are likely to remain elevated in the near term, states ICRA.

Apart from polysilicon price hikes, the cost pressures for solar power projects are arising from the sharp jump in the steel and aluminium prices which are used in mounting structures and back sheets for solar PV modules respectively.

The increase in cell & module prices is likely to moderate the debt coverage and return metrics for the projects bid out over the past one year and with expected commissioning over the next 6- 12 months, according to the study. Further, developers are likely to face delays in execution owing to the supply chain constraints arising from disruptions in China. The availability of adequate timeline buffer under the PPAs or securing timeline extension from the bidding agency remains important.

The presence of strong intermediate procurers like SECI and NTPC is supporting the growth of solar and wind capacities despite the challenges associated with discoms’ finances. Solar power potential in India estimated at 748 GW; similarly, wind power potential estimated at 695 GW. “Key constraints for the sector are the execution challenges and delays in signing of PPAs/PSAs. Further, the recent cost pressure from higher module prices and delays in module delivery would be a key headwind for the developers in the near term,” concludes ICRA.

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Soumya Duggal

Soumya is a master's degree holder in English, with a passion for writing. It's an interest she has directed towards environmental writing recently, with a special emphasis on the progress being made in renewable energy.

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