The downward spiral of the rupee has pushed up the cost of imported solar modules and increased overall project cost, and could render solar power projects worth nearly Rs 28,000 crore unviable as a result, rating agency CRISIL said in a report.
These projects constitute around half of the total solar power capacity that is currently being implemented. They include 5.5 gigawatt (GW) of projects that have been bid out in the past nine months at tariffs as low as Rs 2.75 per unit or less.
These projects, which are in the early phases of implementation, are unlikely to have bought solar modules as yet. Solar modules are only bought 9-12 months after the bids are won.
Solar modules make up 60 percent of the cost of a solar plant, which comes to Rs 5 crore per megawatt (MW). And over 90 percent of them are imported, Subodh Rai, Senior Director at CRISIL, said.
“Our analysis shows that for every 10 percent drop in the rupee value, the cost of setting up a solar power plant increases by Rs 30 lakh per MW, assuming other factors remain unchanged,” Rai said.
As developers do not usually hedge the exchange rate before ordering the modules, they suffer.
What works in the developers' favour is that module prices have fallen 17 percent for these projects from $0.30 per watt at the time of bidding to around $0.25 per watt now, which translates to a benefit of Rs 34 lakh per MW.
However, the fall is not sharp enough to offset the rupee's depreciation beyond Rs 72 to the dollar.
If the rupee remains weak and safeguard duty on imported solar modules of 15-25 percent for two years is levied, project costs will go up by 20 percent, Manish Gupta, Director at CRISIL said.
“This would impact the government’s target of setting up 100 GW solar capacity by fiscal 2022 because discoms would balk at buying renewable power at higher tariffs,” Gupta said.
Banks could also become cautious about financing projects at tariffs less than Rs 3 per unit due to their slim debt service parameters, the rating agency said in its report.