Say Goodbye To 2020’s Low Solar Bids, As Price Hikes Continue In Modules, Cells

Increasing costs to hit solar

The record low prices last seen in GUVNL’s 500 MW auction, when NTPC won with a bid of Rs 1.99/ unit, may be a distant memory as solar equipment prices continue their upward march in 2021. Those low prices in the last big auction of 2020, blamed on NTPC flexing muscle and projections of a continuous drop in costs, are already looking much more risky than even the most skeptical analysts projected.

Depending on who you speak to, the landed cost of cells and modules from China is already 18-22 percent higher in 2021, for deliveries in October and beyond this year. With no sign of abatement, thanks to a series of incidents as well as spike in demand from across the world. Especially China itself.

This month, leading EPC player Sterling and Wilson Solar has already seen it fit to inform the stock exchange that its financial performance has been impacted negatively by the increases seen in the Jan-March quarter this year. Sterling’s problems arose with outright cancellation of contracts by suppliers, as per the notice from the firm.

Now comes the news that there has been a further 8 to 10% increase in cell, wafer and module prices eventually, announced by Longi Green Energy as well as another major Chinese player, Tongwei. these increases, blamed on yet another hike in Polysilicon prices, have already led to some of the smaller Module suppliers reneging on their commitments, insisting on supplying at newer prices. Others like Jinko solar have taken a hit in their Jan-March quarter, to discharge supply liabilities at a loss.

The latest increases follow earthquakes in China’s Xinjiang and Quinghai region, both key bases for their solar manufacturing sector. While both firms have confirmed to the local stock exchanges, that disruption will be managed by the month end, these were still enough to send prices up.

Solar prices have been rising primarily on the back of strong underlying demand, which did not drop off even during the worst of the pandemic impact, save for the early months of 2020, when China itself was affected the most. In the past 12 months, demand has been on a tear, due to a deadline for subsidies in China, and many other countries including Vietnam, besides the US itself. many countries have exceeded their most optimistic capacity addition targets, thank to the low prices that prevailed during 2020 as well as a well supplied market.

All that has changed in less than 3 months. For Indian developers, who have a massive pipeline that has been bid out, the situation becomes especially treacherous to navigate now, as besides rise in import prices, they also have to plan for a possible Safeguard duty free window of opportunity from July end, and a massive customs duty slap from April next year. Any hope of taking advantage of lower prices by placing orders now have been burnt by the raging fire in solar prices. Keep in mind that this was a market in secular decline, as far as prices go, from 2015 onwards. And domestic supplies are nowhere close to ramping up before 2023 at the earliest, when the current PLI scheme for domestic manufacturing is expected to see the first of many new manufacturing initiatives start production.

Ironically, discoms have held off signing PSA’s with SECI for projects where price bids have been in the range of Rs 2.70 to Rs 3.10. These prices will start to look attractive again very soon, except for the fact that the actual ability of developers to build them might be growing suspect by the day, if this trend of increases continues.