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Falling module prices help solar developers absorb shock due to rupee depreciation

Anupam Chatterjee

The heavily import-dependent solar industry has warded off any adverse impact of the falling rupee as the steep reduction in global module prices offset the cost increase attributable to the currency depreciation. During the past one year, the rupee has fallen by about 5% against the US dollar while the module prices were down by 33% to around 21 cents per watt. So, while solar cell imports recorded an increase of 25.7% in the first eleven months of FY19, the value of imports fell 40% year-on-year (to `12,050 crore) in the same period.

According to an analysis by Crisil, every 10% drop in the rupee, the cost of setting up a solar power plant increases by `30 lakh per MW, assuming other factors remain unchanged. Yet, bidders continue to remain aggressive, with the weighted average solar bid tariff in calendar year 2018 remaining at `2.73/unit (vs `3.01/unit in 2017 and `5.01/unit in 2016).

Falling module prices have also cushioned the impact of the 25% safeguard duty levied on the import of solar cells the basic ingredient needed to manufacture solar panels. The duty would be 20% for the next six months till January 29, 2020 and 15% in the subsequent six months.

Impact of safeguard duty and rupee depreciation has been largely offset due to decline in photovolaic (PV) module price levels in last 6 to 8 month period, Girishkumar Kadam, vice president-corporate ratings, ICRA, told FE. The viability of the rates would be critically dependent on timely execution of projects given the execution headwinds in few states, long-tenure debt availability at cost competitive rate and the ability to ensure module cost within the budgeted levels, Kadam added.

Solar developers usually hedge currency risks and factor in module price movements. Both of these have been within the ranges predicted by the company, so the impact on returns considered by us while bidding, remains minimal, Parag Sharma, COO, ReNew Power told FE. About 88% of solar modules in the country, which comprises nearly 60% of project costs, were met through imports in FY18.