July 28, 2016: The price of solar photovoltaic (PV) modules, a chief component in development of solar plants, has been on a descending trend owing to the oversupply in China. Modules make up almost 60% of a solar project’s price. According to Bridge to India, a consulting firm, the drop in prices comes at an ideal time for Indian solar market as Q1 2017 is likely to be the main quarter for new capacity addition up until now,
The sharp decline in solar module prices will help the Indian solar producers ,who have won renewable power projects at insistent tariffs, but are yet to set off with the construction or acquire equipment. This will ultimately result in higher margins, according to industry analysts. Indian solar project developers will also benefit from the sharp fall of solar module prices, paving way for an opportunity to advance returns despite aggressive bidding.
Several solar companies such as Fortum Oyj’s Indian unit, Goldman Sachs-backed ReNew Power Ventures Pvt. Ltd, RattanIndia Solar, Adani Green Energy Ltd, Orange Renewable, and Mahindra Renewables have recently won solar project awards across several states in India. Reduced costs may as well mean that numerous solar projects, which were seen as unviable for being won at aggressive tariffs, could now witness better investor sentiment.
Since the first half of 2016, module prices have already reduced by as much as 10% on a global basis, according to Bridge to India, a boutique consulting firm.
Potential of Indian solar market
India is a promising market for strong growth to worldwide renewable energy firms and investors in such firms. At present, the nation about 8 GW of installed solar capacity, and having added capacity at the best rate in 2016, India is likely to become the fourth leading solar market in 2016, surpassing UK, Germany and France. The nation aims to set up 100GW of solar and 60GW of wind energy capacity by 2022.
Firms that are in the procedure of putting up capacity to add to that pipeline will benefit from the declining module prices. ReNew Power; for instance, consists of a pipeline of 1,000 MW of future constructed solar projects. Solar tariffs first cut down below Rs.5 per unit in November 2016, led by SunEdison Inc.’s aggressive bid of Rs.4.63 per kilowatt-hour in an overturn online auction. Tariffs chopped down further to Rs.4.34 at a January e-auction carried out by state-run National Thermal Power Ltd (NTPC).
Latest bids in the range of Rs.4.6-5.3 per kWh involve a return on equity in a band of 6-13% on the basis of cost of debt. Solar projects won since January would benefit the most as construction usually begins between 8-12 months from the time of winning the project, according to an analyst at India Ratings.
Price drop in India should be further aided by reduction of the Chinese Yuan against the Indian Rupee by about 3-4% over last year, according to Bridge to India, suggesting that the fall in effective costs has been noteworthy to the tune of nearly 10% in less than a year.