Soaring costs to hit 25 GW of solar projects in India
May 25, 2022
New Delhi [India], May 25 : A sharp increase in the prices of solar modules and commodities such as steel, together with rising freight costs, will affect 25 GW private solar capacity under construction in India, CRISIL Ratings said in a report on Wednesday.
The return on equity (ROE) of nearly one-fifth of 25 GW projects is likely to be badly affected. This capacity of nearly 5 GW was mostly bid out between October 2020 and December 2021 and is currently under implementation.
These projects may see their return on equity (ROE) falling by as much as 140-180 basis points to around 7 per cent, CRISIL said in a report.
These projects, totalling 5 GW, were bid at relatively low tariffs of less than Rs 2.35 per kilowatt-hour (kWh), at a time when module prices were softening and commodity prices benign.
"The remaining 80 per cent of projects under implementation (20 GW) will also be hit, but their comparatively higher tariffs and partial cover on cost of modules will limit the impact to 60 - 80 basis points," said Manish Gupta, Senior Director, CRISIL Ratings.
"Most of these projects are in advanced stages of implementation and have imported or tied up some proportion of modules at prices below the current level," Gupta added.
However, there are three factors that are likely to partially offset the loss on returns - these include better module efficiency, and new revenue streams from carbon credit certificate revenue and lower cost of debt, said Ankit Hakhu, Director, CRISIL Ratings.
Firstly, the newer technologies of bi-facial and mono-perc modules can lead to higher generation per unit of cost compared to the poly- or multi-crystalline modules that were predominant two years back.
Secondly, the Environmental, Social and Governance (ESG) focus for corporates - predominantly mining, oil and energy companies in Europe, North America and Australia -- has given rise to a merchant market for carbon credits.
Interest rates for solar developers have fallen significantly since the start of fiscal 2021. Even after factoring recent interest rate hike of 40-50 bps and further such hikes expected, the benefit on reduction in net interest cost is estimated to be about 100 bps over project life as compared to expectations at the time of bidding. This can contribute to nearly 120 basis points of returns.
"The ROE estimates remain sensitive to further rise in module and commodity prices on account of geopolitical issues or supply chain disruptions," CRISIL Ratings said.
