Viability of 2.36/Kwh Bid Tariff to Depend on PV Module Prices & Pass Through of Duty: ICRA

The safeguard duty imposed on imported modules, currently at 15% is about to expire in July 2020 and the Government of India is likely to impose basic customs duty (BCD) from August 1, 2020, onwards

July 08, 2020. By News Bureau

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ISTS) solar projects by Solar Energy Corporation of India (SECI) is lower at Rs. 2.36/Kwh, than even the tariff of Rs. 2.44/Kwh discovered in May 2017. As per ICRA note, the lower tariff is driven by a fall in the global solar module prices caused by the lull in demand owing to the Covid-19 pandemic which coupled with other factors could impact viability of the solar tariffs as these are critically dependent on PV module price level and INR-USD exchange rate, besides the availability of long tenure debt at a cost competitive rate. 

Commenting on the trends, Sabyasachi Majumdar, Group Head & Senior Vice President, ICRA Ltd says, “Further, the viability aspect remains extremely crucial, given the possibility of trade restrictions with China in the near-term which could impact the module availability at competitive prices.  Also, a timely pass-through of increase in project cost due to imposition of basic customs duty, if any, on the imported modules remains critical, given that the notification of such duty is still not in place.”

The safeguard duty imposed on imported modules, currently at 15% is about to expire in July 2020 and the Government of India is likely to impose basic customs duty (BCD) from August 1, 2020 onwards.

The Indian solar sector has largely been dependent on China for procurement of solar modules. However, the sourcing of solar PV modules for under-construction solar projects as well as procurement of raw materials for domestic solar module manufacturing OEMs, especially from China could be a challenge, given the backdrop of increasing geo-political risks between India and China. “In such a scenario, the cost of import of such modules/components from alternate destinations including that of sourcing from the domestic module manufacturers, remains a key monitorable from the viability perspective for the under-construction solar projects in the near to medium term,” says Mr. Girishkumar Kadam, Sector Head & Vice President, ICRA Ltd.

At a capital cost assumption basis modules price of Rs. 0.20 cents/watt, base PLF assumption (DC) of 17.5% and AC:DC ratio of 1:4, the debt coverage metric for the project having a bid tariff of Rs. 2.36/Kwh is estimated at 1.25 times over an 18-year debt repayment period, assuming a pass-through of applicable customs duty impact in a timely manner. However, a 20% increase in the module price level is estimated to negatively affect the DSCR, by 0.10 times to 1.15 times.  Further, debt coverage metrics also remain exposed to variation in INR-USD rate (in case of imported modules) and interest rate, besides the exposure to PLF variation risk due to climatic conditions.

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