Globally, most experts have predicted that module prices will continue to fall in the first half of 2013 as a significant overcapacity still exists. Prices from the last two months, however, suggest a contrary trend: a firming up of prices. On the global front, a price index (PV-Insights) has posted marginal week on week increase in upstream raw material costs for over one month now. This has been confirmed to BRIDGE TO INDIA in the Indian market by leading EPC companies and project developers. We believe that this is a good development at this point in time.
- Prices in India had been up to 14% lower than the average global prices
- Developers in India have in the past bid for tariffs based on a discount factor for expected cost reductions
- The stabilisation in solar PV prices will lead consumers to stop waiting and start buying
- India needs a stable and predictable pricing regime so that an ecosystem is built that allows businesses to succeed and innovate
In 2012, based on the available market information, BRIDGE TO INDIA had suggested that many deal prices in India had been up to 14% lower than the average global prices. According to BRIDGE TO INDIA’s conversations with global module suppliers, including Chinese suppliers, Indian developers often expect unrealistic prices and some suppliers feel that they can no longer continue to service the market. Due to this, some suppliers have scaled down their plans for sales to the market.
Under a competitive process, developers in India have been in the habit of bidding for tariffs based on a discount factor for falling cost of solar modules, i.e., developers anticipate a price reduction between the bidding date and the procurement date and then bid based on this anticipated price reduction. If module prices stabilise or even rise, the market dynamics will fundamentally change. Another key game changer can be the imposition of anti-dumping duties. The cost of modules in India is expected to rise, if anti-dumping duties are enforced (to understand the impact, refer to the key-question section in the January 2013 edition of the INDIA SOLAR COMPASS).
We expect that BOS costs will continue to see some price reduction as volumes and competition increase. This effect might not be significant in MW-scale projects, where margins are already squeezed. The impact will be counteracted by the increasing cost of land. It is estimated that the cost of land for setting up solar projects in Rajasthan has gone up by almost 300% (from INR 100,000/acre to INR 400,000/acre).
The price reduction that has taken so far will begin to seep into the kW-scale market, where we expect system price costs to come down significantly. This segment will get a further push as the maximum size of MNRE subsidy-based projects has been increased from 100 kW to 500 kW under phase two of the NSM, boosting demand from industrial and commercial consumers. We expect that the budget for subsidies for a financial year, which has been fixed at a cumulative upper limit of 100 MW, will be exhausted before the end of the year and projects planned thereafter will not get subsidy sanctions.
An overall cost stabilization for large kW and MW scale projects at around USD 0.65/Wp (exclusive of taxes), will push some serious stakeholders that have been sitting on the fence to stop waiting and start investing. Developers, investors, manufacturers and power consumers will be able to plan their investments based on fundamentals and move away from the earlier guess work of falling costs.
At this point in time, India needs a stable and predictable pricing regime so that an ecosystem is built that allows businesses to succeed and innovate. In the long run, gradual cost reductions backed by technology and process improvements should continue to make solar increasingly more competitive.
Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.
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