The reduction in incentives for solar energy projects in China will benefit Indian solar independent power producers with softer module prices, Icra Rating said today.
The revision in feed-in tariff rates and imposition of installation caps for solar power projects by the Chinese government is expected to negatively affect the demand for solar power modules in China, Icra said in a statement.
According to the statement, it has not only imposed a cap of 10 GW for new distributed generation solar power projects based on feed-in tariff in CY2018, against 19 GW installed in 2017, but further has removed the capacity target for utility scale projects and stated that no new utility scale projects should be awarded on feed-in tariff basis.
"The policy changes in China are likely to impact the domestic demand for solar PV modules and consequently result in a softening of export prices for Chinese PV module manufacturers. This is likely to result in lower equipment costs for Indian developers/IPPs.
"On the other hand, the aforesaid softening in the module price levels internationally is likely to be a negative for domestic module and cell manufacturers due to increase in competitive pressures through imports," Sabyasachi Majumdar, Senior Vice President & Group Head, Icra Ratings said.
Out of the total 5.5 GW solar power capacity that has been bid out during FY2018, as much as 2.9 GW has been bid at tariffs equal to or lower than Rs 3 per unit. The developers have based the bids on expectations of fall in imported module prices and certain other advantages like availability of land and evacuation infrastructure for projects in solar parks.
However, it said that risks have accentuated because of the unexpected reversal in the trend of falling module prices with prices rising from about 30 cents/watt in May 2017 to about 36 cents/watt in August 2017 and remaining in this range till date, besides factors like the rising interest rates and the fairly steep depreciation of the rupee in recent months.
Here onwards, any material reduction in module prices from the current levels will improve the viability of these projects. As per Icra estimates, an 8 cent/watt decrease in the PV module price is estimated to lower the capital cost by about 13 per cent, which in turn is estimated to result in improvement in cumulative debt service coverage ratio (DSCR) by 0.15 times for a solar power project with tariff of Rs 2.5 per unit.
This is assuming a debt and equity ratio of 70:30, rupee dollar exchange rate of 67, cost of debt at 9.5 per cent post commissioning with debt repayment tenure of 18 years and plant load factor (PLF) level of 24 per cent (with DC-AC ratio of 1.3 times and degradation factor of 0.5% per year). The recent trend in rupee depreciation against USD, if continued, will however partially offset the benefit of module price reduction for the solar IPPs in India, It added.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)