Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings says, “Such pricing pressure, if sustained over the next three to six-month period, will adversely impact the viability of recently bid solar power projects, where bid tariff is below Rs. 3.5/unit. Further, any delays in delivery schedule and/or dishonoring of price terms agreed earlier by Chinese OEMs to the Indian independent power producers (IPP)s having solar power projects under implementation, may lead to risk of delays along with cost over-run. Given the present circumstances, where attempts are being made for PPA renegotiation / cancellation by distribution utilities in few states, any project execution/completion delay by the developers beyond the scheduled completion date as per PPA is a critical risk factor.”
The solar PV energy project capacity awarded, both through National Solar Mission and state Policy route, with bid tariff below Rs 3.5/kwh as on August 2017 stood at 3250 MW, within which 750 MW bid capacity is having tariff below Rs 3/unit - varying between Rs. 2.44/unit and 2.65/unit and balance 2500 MW capacity is with bid tariff above Rs 3/unit - varying between Rs 3.15/unit and 3.47/unit.
As per ICRA estimates, a 6 cent/watt increase in the PV module price is estimated to result in an increase of about 11% in the capital cost, which in turn is estimated to result in a decline in cumulative average debt service coverage ratio (DSCR) by 0.12 times and decline in project internal rate of return (IRR) by 180 basis points for a solar power project with tariff of Rs. 2.5 per unit. This is assuming a debt and equity ratio of 70:30, rupee dollar exchange rate of 65, cost of debt at 9.5% post commissioning with debt repayment tenure of 18 years and plant load factor (PLF) level of 24% (with DC-AC ratio of 1.3 times and degradation factor of 0.5% per year). In this context, the viability of solar power projects with tariffs below Rs 3.5 per unit remains critically dependent upon ability to source modules within budgeted cost along with availability of long tenure debt at cost competitive rate.