The falling rupee and the imposition of safeguard duty have increased the cost of solar panels for Indian developers by 20-25% since June this year, negating the benefits of a 30% fall in panel prices during the period. The panel prices have dropped from a peak of 37 cents per watt in June to 26 cents in October. However, the imposition of 25% safeguard duty for two years on the import of solar panels from China and Malaysia, coupled with the depreciation of the rupee by around 9.3% since June, have increased the cost of panels for Indian developers by 20-25%.
The drop in panel prices was led by China’s reduction in targeted capacity addition for 2018 to 30 GW from 45 GW planned earlier, leading to oversupply of panels in the market. Sanjeev Aggarwal, CEO of Amplus Energy Solutions, said if the government provides compensation for safeguard duty on existing projects by giving higher tariffs, the impact of a depreciating currency alone would only be around 5%.
However, if the safeguard duty is not allowed as a pass-through for existing projects, the projects will become unviable as the internal rate of return will go below the cost of the projects. “The margins have already dropped to 12-14% for solar projects. The depreciation of rupee will reduce it further by 100-200 basis points, and if the safeguard duty is not compensated for existing projects, the projects will become unviable for developers as the returns will go below 10%,” Aggarwal said.
The current cost of borrowings for solar projects is around 9.5-10%, he said. The Indian developers have been looking for alternative geographies such as Vietnam to reduce the impact of safeguard duties. However, it will be difficult to import cheaper products and equipment from outside India as the government has made it mandatory for manufacturers to adhere to the Bureau of Indian Standards norms for domestic as well as imported panels.
Kameswara Rao, lead, energy at PwC India, said: “There is no major change in sourcing strategy as yet, and buyers in fact are preferring tested suppliers, because quality and delivery schedule is very critical for use in competitively bid projects. (However), this could change in a few months as new supply centers are coming up.”
Kunal Chandra, managing director of Proinso India, the Indian arm of UK-based solar panel suppliers, said: “Although Europe has removed the minimum import price on solar panels, which will slightly increase the demand, the prices are likely to remain at the current levels or fall further for the next two quarters as supplies will far exceed the demand. I see the prices fall to 22 cents per watt in the coming quarters for the reputed brands out of China,” Chandra said.