A CRISIL report released indicates an anticipated surge in solar capacity implementation for the ongoing financial year, attributing this momentum to a steady decline in the price of solar modules since October 2022. This forecast predicts a remarkable annual pace of 16 GW, fueled by the enhanced internal rate of return (IRR) of 45 GW utility-scale solar projects awarded since fiscal year 2021.
The report highlights that previous years, particularly 2021-2022 and 2022-2023, experienced a slowdown in implementation due to various factors, including disruptions caused by the Covid-19 pandemic and challenges related to safeguarding the Great Indian Bustard bird. Authorities granted extensions in response to these challenges, leading to delays in executing the awarded projects.
However, with the recent drop in module prices, the conclusion of pandemic-related disruptions, and clearer guidelines regarding the protection of the Great Indian Bustard (including plans to install bird diverters on existing and new low-voltage transmission lines), the CRISIL report anticipates accelerated execution by 2025-2026.
The reversal of the falling trend in solar module prices during the last quarter of fiscal year 2021 had a significant impact, leading to a rise in the cost of key raw materials such as polysilicon and aluminum. Consequently, the returns of 20 GW of projects auctioned in fiscal years 2021 and 2022 were affected, challenging the viability of some projects as developers had initially factored in declining module prices during bidding.
Ankit Hakhu, Director at CRISIL Ratings, highlighted, “The pandemic-linked extension in the scheduled commissioning dates provided relief to these projects, giving developers a chance to defer module purchases.”
As of September 2023, module prices have softened by approximately 30 percent compared to the average of the last fiscal year. This decline is expected to significantly improve project IRRs by an estimated 300-500 basis points (bps), reaching an average of 9 percent.
Varun Marwaha, Associate Director at CRISIL Ratings, emphasized, “Softer module prices will also benefit 25 GW of capacities bid during and since fiscal 2023. These projects had higher bid tariffs and should see their IRR improve by 200-300 bps now that module prices have eased.”
The industry’s optimistic outlook suggests that this significant shift in module pricing could mark a turning point, potentially expediting the pace of solar capacity implementation and fostering more financially viable projects in the near future.