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Solar power projects worth Rs 28,000 crore facing viability risks
Nearly half of the solar power generation capacity worth Rs 28,000 crore currently under implementation in India is facing viability risk because of the continuous fall in the value of the Rupee. The currency depreciation has made imported solar modules costlier and has increased the cost of setting up solar power projects.
The projects facing the risk have a combined capacity of 5,500 Megawatt (Mw) and were bid out in the past 9 months at a very low tariff of Rs 2.75 per unit of less. These projects are in the early phase of implementation and are unlikely to have bought solar modules, orders for which are typically placed 9-12 months after the bids are won.
Modules account for 55-60 per cent of the total cost of setting up a solar project, which is typically Rs 5 crore per Mw. “Today, over 90 per cent of them are imported. Our analysis shows that for every 10 per cent drop in the Rupee, the cost of setting up a solar power plant increases by Rs 30 lakh per Mw, assuming other factors remain unchanged,” said Subodh Rai, Senior Director at research and ratings firm CRISIL Ratings.
Project developers do not generally hedge the exchange rate before placing orders for modules. Developers had anticipated low module prices while bidding at low tariffs. The module prices have fallen by around 17 per cent for these projects from $0.30 per watt at the time of their bidding to around $0.25 per watt at present -- a benefit of Rs 34 lakh per Mw.
However, a sharp depreciation in the Rupee to more than Rs 73 per dollar has wiped off the gains from lower module prices. That, in turn, will compress the debt servicing cushion available for these projects.
For future projects, another risk is the levy of safeguard duty on imported solar modules of 15-25 per cent for two years, with effect from July 30, 2018. The decision to implement the duty will depend on the verdict of the Odisha High Court, which is hearing a petition by developers.
“If the Rupee remains weak and safeguard duty is also levied, project costs would dart up by as much as 20 per cent. In such a situation, viable tariff for future projects will have to be higher by 30 paise per unit,” said Manish Gupta, Director, CRISIL Ratings. “This would impact the government’s target of setting up 100,000 Mw solar capacity by fiscal 2022 because discoms would balk at buying renewable power at higher tariffs,” he added.
Apart from these issues, lenders could also turn cautious to finance projects at a tariff of less than Rs 3 per unit due to their slim debt service parameters.