Solar Power bids below Rs 9 per unit risky: CRISIL
Decline in solar module prices to slow down; JNNSM bids less than Rs 9 per unit risky, says CRISIL Research
June 07, 2012 / 16:31 IST
Decline in solar module prices to slow down; JNNSM bids less than Rs 9 per unit risky, says CRISIL Research
Solar power is emerging as an important source of power in India with the Government of India pushing through policies to meet its larger agenda of encouraging green power and diversifying its energy mix. The Gujarat state solar policy and the centre’s Jawaharlal Nehru National Solar Mission (JNNSM) are at the forefront of solar power development in India, with the Gujarat solar policy contributing to almost 70 per cent of the capacity additions in 2011-12.In addition to government support in the form of solar power purchase obligations for state distribution utilities, a rapid decline in capital costs of solar photovoltaic (PV) projects also encouraged capacity additions, taking total generating capacity from a mere 20 MW in 2010-11 to 940 MW in 2011-12. CRISIL Research, India’s largest independent integrated research house, however, believes that the pace of reduction in capital costs of solar PV projects is expected to moderate in 2012 resulting in pressure on profitability of players who have bid aggressively below Rs. 9 per unit under batch 2 of JNNSM. Almost half the bids under JNSSM have been below Rs 9 per unit and about a fourth of the bids below Rs 8.5 per unit, making these investments highly risky.Favourable government policies powering solar power demandBoth JNNSM and Gujarat’s solar policy encourage capacity additions and investments by facilitating long term offtake agreements between project developers and distribution companies (discoms) at preferential tariffs. As solar power is nearly four times as expensive as conventional coal-based power, the power producers need to be compensated at higher cost-reflective tariffs. In order to spur demand for the more expensive solar power, states have been mandated to procure 0.25 per cent of their power requirements from solar power under the solar renewable purchase obligation (RPO).Solar PV projects become cheaper as supply glut causes solar module prices to crashWhile government policies are encouraging offtake, the falling capital cost of solar photovoltaic (PV) projects is giving solar power a further boost. Capital costs fell by 30 per cent (y-o-y) to Rs 100 million per MW by the end of 2011. The fall in costs was driven by a 50 per cent drop in the prices of solar PV modules, which account for almost half the capital costs of a PV project. The sharp fall in capital costs has improved the returns from the projects that were commissioned in 2011-12.Module prices crashed due to the aggressive capacity build-up by China in 2010 and 2011 even as demand in key European markets dried up. The significant additions to module capacities by the Chinese have resulted in overcapacity of nearly 50 per cent in the global module market. The unprecedented growth in solar power installations coinciding with the withdrawal of incentives to solar power generators in key markets such as Germany, Spain and Italy has led to pressure on module prices.Disclaimer: CRISIL Research, a division of CRISIL Limited (CRISIL), has taken due care and caution in preparing this Report based on the information obtained by CRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a
recommendation to invest / disinvest in any company covered in the Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISIL’s prior written approval.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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