The coming solar eclipse

The crisis in the power sector is far from over with over Rs.1 trillion of stressed coal-based power NPAs still to be resolved as lenders are not willing to take a steep haircut and, more importantly, there are only a few takers for the stressed projects.

But now a crisis is emerging in the renewables space as well. The much-touted solar power story is now facing heat, thanks to the fall in the rupee. According to Crisil, nearly half of the solar power capacities under implementation worth Rs.280 billion face viability risk because of the continuous fall in the rupee as imported solar modules get costlier. Thus increasing the cost of setting up solar plants, including 5.5 GW of projects bid out in the past nine months at very low tariffs of Rs.2.75 per unit or less.

Crisil believes that since these projects are in the early phase of implementation and unlikely to have bought solar modules, orders for which are typically placed 9-12 months after bids are won. “Solar modules account for 55-60% of the project cost of a solar plant, which is typically ~Rs.50 million per MW,” said Subodh Rai, senior director, Crisil Ratings. The rating agency’s analysis shows that for every 10% drop in the rupee, the cost of setting up a solar power plant increases by Rs.3 million per MW, assuming other factors remain unchanged.

What worked in favour of the developers was the fall in module prices, which are down ~17% for from $0.30 per watt at the time of their bidding to around $0.25 per watt at present, that translates into a benefit of nearly Rs.3.4 million per MW. But Crisil feels the arithmetic did not countenance a sharp depreciation in the rupee to more than Rs.73 per dollar, which has wiped off the gains from lower module prices. That, in turn, will compress the debt servicing cushion available for these projects. What is complicating the picture is the levy of safeguard duty on imported solar modules of 15-25% for two years, with effect from July 30, 2018. A weak rupee and safeguard duty would spike up project costs by ~20%. In such a situation, viable tariff for future projects will have to be higher by 30 paise per unit,” feels Manish Gupta, director, Crisil Ratings.

In other words, the renewable power sector could continue to see outages as witnessed in the past.