…says Raj Prabhu, CEO & Co-founder of Mercom Capital Group, while analysing the impact of rising module prices on India’s solar industry

 

Will rising prices for Chinese modules encourage investment in module manufacturing in India?

The answer is a little complicated. First, we need to wait and see what the antidumping decision will look like and then, if a duty is 

imposed, what it will be. If the duty is aggressive and lasts for a long time, then it will compel Indian manufacturers to invest in new manufacturing capacity. However, Chinese companies will still be able to manufacture and export to India via other countries like Vietnam, where they have a manufacturing presence. 

 

In addition, demand will suffer if module prices rise by 20 percent or more as many DISCOMs will shy away from procuring solar at such prices – ultimately reducing the need for modules. In the end, the Indian market must be large and stable in order for foreign companies to invest as building manufacturing units with less than 1 GW of capacity does not create the scale they need to bring down cost, effectively manufacture and sell at competitive rates.

 

If DGAD recommends anti-dumping duties on Chinese modules, how will it affect the solar power industry?

If an anti-dumping duty is levied, tenders and auctions will slow down further as the modules that make up approximately 60 percent of project cost become expensive. Manufacturing capacity will take care of itself but the challenge will be a matter of who is willing to pay more for solar power? Currently, DISCOMs aren’t even willing to pay more than Rs 2.44/kWh, which is the lowest bid in India. If solar bids go up to more than Rs 3/kWh, you will again see DISCOMs looking toward thermal power.

 

Will aggressive bidding for solar projects make these projects unviable in the long-run and lead to an NPA-like situation?

Right now, there’s no bidding or any major tendering activity going on. The sector is stalled as it awaits the result of DGAD’s investigation. The earlier aggressive bidding strategy was based on the assumption that module prices would continue to decline no matter what. Hopefully, if project economics are not viable under current market conditions, lending institutions will decline to lend to such projects instead of getting into a NPA-like situation.

 

Will rising module prices drive DISCOMs and developers away from long-term agreements?

Without long-term power purchase agreements, large-scale projects will not get built nor will they be able to sell power at competitive rates. Realising this, the MNRE recently updated its guidelines for the tariff-based competitive bidding process for solar projects, which call for long-term, 25-year power purchase agreements.

 

Recently, the government set new norms for DISCOMs buying power from solar power projects. Will this help the industry?

It will, but they will not buy solar power if it is more expensive.