The cost of setting up solar power projects in India could rise around 20% over the next six-eight months, as higher domestic sourcing requirements combine with elevated input, freight and supply-chain costs stemming from the West Asia conflict, adding pressure on project economics just as the country prepares for another large renewable capacity build-out.
The cost shock comes with more than 150 GW of renewable projects under construction as of June 30, 2026. Rating agency Icra expects renewable energy, including large hydro, to contribute over 35% of India’s power generation by FY30, against 22% in FY25, making execution, transmission and storage availability increasingly critical.
A key pressure point is the price differential between domestic and imported solar cells. Icra estimates a module manufactured by a domestic OEM using imported cells costs around 16 cents/watt, compared with 22.5 cents/watt using domestic cells, a premium of 6-7 cents.
The gap comes despite a rapid expansion in module manufacturing. ALMM-registered module capacity surged to 215.5 GW in July 2026 from 173 GW in March, while domestic cell capacity stood at only 31.8 GW, against 31 GW in June. Icra expects module overcapacity to trigger consolidation, with vertically integrated manufacturers better positioned.
Higher costs are arriving as bidding activity loses momentum. Renewable capacity awards dropped from 40.6 GW in FY25 to 14.7 GW in FY26, with only 4.7 GW awarded till August 10 in FY27. Unsigned PPA capacity remained sizeable at 40-45 GW as of April 2026.
“While the bidding activity has moderated, a notable feature is decline in the bids for normal solar and wind and more focus on firm and dispatchable renewable energy and round-the-clock power,” said Girishkumar Kadam, senior vice-president and group head, Corporate Ratings, Icra.
Kadam said SECI’s latest demand-based supply tender discovered a tariff of ₹5.25/unit, below most new thermal plants costing above ₹6/unit and exposed to fuel-cost escalation.
Grid constraints, however, are emerging as another threat to returns. Around 37% of capacity at impacted substations across the northern, western and southern regions operates under temporary GNA, with curtailment of 30-50% during solar hours, according to Icra. Peak curtailment has reached 8,617 MW in the western region and 5,573 MW in the north.
“Timely execution of intra-state and inter-state transmission infrastructure and enhancement of storage capacity will be critical to protect project economics and sustain the pace of capacity addition,” Kadam said.
Storage is consequently becoming central to grid integration. BESS capacity that is operational, under construction or awarded stood at around 90 GWh as of June 2026. Icra estimates levelised storage costs for 2-4 hour BESS at ₹4-7/unit, compared with around ₹5/unit for pumped-storage hydropower.
Battery economics remain sensitive to equipment prices. At battery costs of around $70-75/kWh, total BESS capital costs are estimated at $110-130/kWh. Kadam said the reversal in battery-price trends and rupee depreciation have pressured previously bid projects, with cumulative debt-service coverage ratios for some standalone BESS projects at 0.80-1.20 times.
Despite the near-term headwinds, Icra retains a Stable outlook on renewables, supported by policy measures, competitive tariffs and corporate demand. India added a record 50.9 GW of RE capacity in FY26 and Icra expects another 45 GW in FY27, even as PPA delays, equipment costs, transmission availability and project execution remain the key risks.