Dearer Module, Steel And Freight Will Hit 5 GW Solar Capacity: CRISIL

Rise in prices of solar modules, freight and steel will have an adverse impact on 5 GW solar capacity. The solar modules by and large contribute in the range of 55-60 per cent to the cost of a solar project and its price has increased by 40 per cent from January last year to March 2022. Besides, Steel contributes 5-10 per cent to the total cost of a solar project, while its price has risen by 25 per cent during the said period.

Crisil Ratings released a statement on May 25 that, “A sharp increase in the prices of solar modules and commodities such as steel, together with rising freight costs, will pull down the Return On Equity (ROE) of nearly a fifth of the 25 GW private solar capacity. This capacity of 5 GW was mostly bid out between October 2020 and December 2021 and is currently under implementation.”

The projects totaling 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. These projects may see their ROE falling by as much as 140-180 basis points to around 7 per cent, read the statement further.

Manish Gupta, Senior Director, CRISIL NSE -1.09 % Ratings, added “The remaining 20 GW capacity projects 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. 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.”

The downturn can still be stopped though as Ankit Hakhu, Director, CRISIL Ratings, elaborates, “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.”