A recent report by GTM Research claims that new global capacity addition announcements can bring about a turning point in the PV supply-demand dynamics in 2014 (refer). The report concludes that there are definite signs the balance between supply and demand in the PV market has not just been restored, but it is beginning to emerge that there is a very real possibility of a supply shortage in the offing. If this conclusion is to be believed, then the constant cost reductions in the solar PV markets, at least in the short term, might become a thing of the past.

• There has been an upward correction in module prices in India
• Competitive bidding mechanism and global oversupply ensured that the module costs in India are one of the lowest globally
• Large international suppliers are shifting their focus away from India toward other emerging markets

In India, we have already seen an upward cost correction in module costs in 2013, primarily due to the depreciating rupee. It is only the dramatic cost reduction in inverter costs (for central inverters) in India in 2013 that have provided some cushion.

Module costs in the Indian market have been extremely competitive. The competitive bidding mechanism in the country along with global oversupply ensured that modules costs in India were one of the lowest globally. In the last two years, lower margins in the Indian market, state level policy uncertainties and a delay in the allocations under the National Solar Mission has led many large international suppliers to shift their focus away from India and towards other emerging markets. Therefore, any upward cost correction globally, especially one which is driven by an uptick in the global demand, is likely to have a higher impact on the module costs in India.

In such a situation, tariffs fixed for several private PPAs, allocations in states such as Andhra Pradesh and Karnataka and the open category bids under the NSM (that would have an average levelized tariff of around INR 6.50/kWh (USD 0.105/kWh)) might find it difficult to absorb any significant upward movement in module prices through the course of this year.

This risk, coupled with any currency volatility, can play a dampener for new capacity additions in the Indian market.