Viability of Rs 2.36/Unit to Depend on Module Prices & Duty: ICRA

The viability of the Rs 2.36/Unit tariffs are critically dependent on PV module prices and the proposed pass through on import duty, according to ICRA.

The recently concluded tranche IX auction for inter-state transmission systems (ISTS) solar projects by the Solar Energy Corporation of India (SECI) yielded the lowest ever tariffs at Rs 2.36/unit, considerably lower than the Rs 2.44/Unit discovered in May 2017. And as per a new ICRA note, the lower tariff is driven by a fall in the global solar module prices caused by the lull in demand owing to the COVID-19 pandemic which coupled with other factors could impact the viability of the solar tariffs as these are critically dependent on PV module price level and INR-USD exchange rate, besides the availability of long tenure debt at a cost-competitive rate.

Sabyasachi Majumdar, Group Head & Senior Vice President, ICRA said, “Further, the viability aspect remains extremely crucial, given the possibility of trade restrictions with China in the near-term which could impact the module availability at competitive prices. Also, a timely pass-through of increase in project cost due to imposition of basic customs duty, if any, on the imported modules remains critical, given that the notification of such duty is still not in place.”

The safeguard duty imposed on imported modules, currently at 15 percent is about to expire in July 2020 and the Government of India is likely to impose basic customs duty (BCD) from August 1, 2020, onwards.

The Indian solar sector has largely been dependent on China for the procurement of solar modules. However, the sourcing of solar PV modules for under-construction solar projects as well as the procurement of raw materials for domestic solar module manufacturing OEMs, especially from China could be a challenge, given the backdrop of increasing geopolitical risks between India and China. “In such a scenario, the cost of import of such modules/components from alternate destinations including that of sourcing from the domestic module manufacturers, remains a key monitor-able from the viability perspective for the under-construction solar projects in the near to medium term,” said Girishkumar Kadam, Sector Head & VP, ICRA.

The note further details that at a capital cost assumption basis module price of Rs 0.20 cents/watt, base PLF assumption (DC) of 17.5 percent and AC:DC ratio of 1:4, the debt coverage metric for the project having a bid tariff of Rs 2.36/kWh is estimated at 1.25 times over an 18-year debt repayment period, assuming a pass-through of applicable customs duty impact in a timely manner.

However, a 20 percent increase in the module price level is estimated to negatively affect the DSCR, by 0.10 times to 1.15 times. Further, debt coverage metrics also remain exposed to variation in INR-USD rate (in case of imported modules) and interest rate, besides the exposure to PLF variation risk due to climatic conditions.