Solar margins may rise in India

From 2010 to 2013, solar costs have come down dramatically. For the past two years, experts had been saying that solar prices would remain stable. However, at least in India, cost reduction, while slowing, has not halted. Project implementation costs have fallen by almost 10% in 2013 and another 12% in 2014. While module costs have fallen by roughly 10%, a similar, if not higher, cost reduction has come from inverters, mounting structures and other BOS.

  • There are murmurs that Chinese suppliers may have asked for renegotiations with Indian developers because of the increased demand from within China
  • Supply capability of prominent mounting structure manufacturers and inverter assembly companies is limited and a spike in demand may lead to increase in costs
  • With increased demand, input costs may rise in the domestic market in the short term

Globally, solar installations have been growing at an impressive pace. A large share of growth has come from China, which is also the world’s largest solar modules supplier. On the modules side, global factors contribute more to the final cost of solar modules in India than what happens in the country itself. On one hand, there are murmurs that Chinese suppliers may have asked for renegotiations with Indian developers because of the increased demand from within China. On the other hand, polysilicon costs have fallen dramatically this year. The module costs can go anywhere from here. Most analysts have given a flat outlook for module costs.

Inverter costs in India are amongst the lowest globally. This has primarily been driven by local assembly and by intense competition. However, the local assembly capacity is limited. If the Indian market suddenly starts growing at 4-5 GW a year, up from the 1 GW in 2014, the existing capacity might not be able to ramp up that quickly. This would necessitate fully assembled imports that are more expensive, leading to an increase in inverter costs.

Falling cost for module mounting structures has been one of the biggest contributor to the fall in project cost. They have fallen by almost 60% in the past 4-5 years. The manufacturing of structures is a fairly consolidated market with the top five companies in India controlling 80% of the market share. These players have a cumulative capacity of 2,300 MW per year. This might seem like a solid base for future growth. However, the demand in India is cyclical and driven by policies. Timely deliveries for the entire 2,300 MW will already be an issue, leave alone catering to a 4,000-5,000 MW market. The costs for mounting structures can also go up if there is a spike in capacity addition. However, this increase will be short lived as companies can start buying parts of the structure from other steel fabricators.

Until now, tariff based bids have been very competitive. Far fewer projects have been allocated as compared to the development appetite of the private sector. This year, the central government wants to allocate 10 GW of capacity. Over and above that, Uttar Pradesh, Tamil Nadu, Karnataka, Maharashtra and other states have or might bring their own capacities. Tamil Nadu is signing PPAs at an attractive tariff of INR 7.01/kWh. With so much capacity up for grabs, the bids might not be as competitive as they have been in the past, where developers had to make do with sub-optimal returns. Margins along the value chain might recover. This, coupled with any increase in input costs might push the solar tariffs up, at least in the short term. In the medium to long term, the cost trend continues to be downward.

Jasmeet Khurana is Senior Manager – Market Intelligence at BRIDGE TO INDIA

1 comment

  • Jasmeet,
    Clearly this isn’t the case – the recent bid by SkyPower is a case in point. In my view solar prices will continue to fall in india for the following reasons:
    1. commodity prices are cooling off thanks to a slowing china, continuing problems in europe (greece) and a us economy that isnt improving at a rate people expect. this will keep raw material costs low
    2. india is now the larget solar market for the next five years (and probably longer). This will mean that new entrants will continue to enter the market and drive prices to new lows. Yes the established players like Welspun, Azure and Sun Edison will continue to reflect the ‘true market cost’ of solar in India which is close to INR 6.20/kWh.
    3. Finance is still cheap thanks to the ample liquidity in world economy due to low central bank interest rates. India’s inflation (WPI) is already in negative territory. CPI is also much lower than a year ago. The RBI has brought down interest rates by 1.5% already and this trend should continue in my opinion. You know better than anyone else that low debt is a significant enabler to low solar tariffs.
    It is for these reasons I believe that india will remain an exciting and COMPETITIVE market. THis can only mean a stiff pressure on margins AND a downward price trajectory.

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