Falling Module Prices To Ensure Record Solar Capacity Addition in FY24- CRISIL

Ratings and research agency CRISIL has weighed in on the impact of falling solar module prices. A steady decline in the price of solar modules since October 2022 will boost the internal rate of return (IRR) of 45 GW of utility-scale solar project pipeline1 awarded since fiscal 2021. This, in turn, will propel solar capacity implementation to its fastest annual pace of 16 GW this fiscal, says the firm.

Implementation had slowed in fiscals 2022 and 2023 due to the Covid-19 pandemic-related disruptions and challenges stemming from the efforts to protect the Great Indian Bustard bird, for which extensions were given by the relevant authorities. That, along with an upsurge in module prices, had delayed execution.

Now, with module prices once again falling, the end of pandemic-related disruptions and clarity regarding the protection process for the Great Indian Bustard (bird diverters to be installed on extant and new low-voltage transmission lines) execution is expected to be hastened by fiscal 2026, it predicts.

 

The trend of falling module prices had reversed in the last quarter of fiscal 2021 (refer to annexure) as higher prices of key raw materials such as polysilicon and aluminium drove up the cost. This impacted the returns’ profiles of ~20 GW of projects auctioned in fiscals 2021 and 2022 — included in the 45 GW of solar project pipeline cited above — as developers had factored in the falling module prices when bidding for capacities. Module prices are typically tied up closer to the installation period of 6-9 months.

Says Ankit Hakhu, Director, CRISIL Ratings, “If implemented as per schedule, the average IRR of ~20 GW projects auctioned during fiscals 2021 and 2022 could have fallen to as low as 5%, with some even becoming unviable on a standalone basis. However, the pandemic-linked extension in the scheduled commissioning dates provided relief to these projects, giving developers a chance to defer module purchases.”

Now that module prices have softened2 — down ~30% as of September 2023 compared with the average last fiscal — project IRRs may improve by 300-500 basis points (bps) to ~9%3, on average.

Says Varun Marwaha, Associate Director, CRISIL Ratings, “Softer module prices will also benefit 25 GW of capacities bid during and since fiscal 2023. These 25 GW of projects had higher bid tariffs (Rs 2.5-2.7 per unit) compared with those awarded in prior fiscals (below Rs 2.5 per unit), as they factored in higher module costs, and should see their IRR improve 200-300 bps now that module prices have eased.”