Indian solar projects hit as Chinese gear prices rise
BENGALURU: Prices of Chinese solar modules have increased for the first time since 2017, making Indian developers apprehensive about returns on their projects, since around 85% of modules used in India are imported from China.
Two unexpected events have led to the recent increase – first, an explsosion and subsequent damage to the production line at GCL Poly, a Chinese poly-silicon and silicon wafer giant, which accounts for around 30% of the world’s poly-silicon production; second, floods in China’s southeast, leading to forced temporary closure of another Chinese poly-silicon producing heavyweight, Tongwei. These two developments have disrupted the global solar module supply chain.
The cost of a single multi-crystalline solar module has gone up from about USD 16-16.5 to over USD 17. Mono-crystalline module price has risen from about USD 17.5 to USD 18-19, according to data from renewable energy consultancy firm, Bridge To India (BTI).
As a result, for new projects, equivalent tariff impact is estimated at about Rs 0.07/ kWH, BTI said.
"This pricing is likely to remain the same for the next 16 to 18 months. Solar developers will see a significant drop in their returns," said a developer.
"The problem is that the expectation over the last several years has been that of solar module prices progressively going down," said an industry executive. "It's going up or down relative to expectations.” He implied that since all costs rise over the years, that of solar modules was eventually bound to, and those having bid for solar projects expecting the opposite, were likely to be hit hard. “If you're very aggressive in your assumptions (while bidding), it'll happen to you more frequently (in future too)," the person said.
As a result, Chinese module suppliers are reneging on signed contracts, unless higher prices are paid, according to people in the know. "Module suppliers are not being faithful to the contracts they've signed. They have also been losing money for the last few years, so if they see an opportunity to improve their pricing, there is pressure on them to capture that," the person said.
Even long time suppliers were being difficult. “Agreement between module suppliers and developers do not depend on relationships,” said the executive. “They are transactional. Modules are treated like a commodity."
"Indian developers also do the same, this practice of renegotiation has been going on for the past five years," said another industry insider.
The low tariffs in recent auctions that the industry witnessed in the last two months were not sustainable, experts said, all the more so with the latest rise in module prices. "Prices had fallen sharply temporarily because of huge oversupply post COVID-19, with the manufacturers keen to clear out inventory at any cost. So some rebalancing was anyway expected," said Vinay Rustagi, Managing Director, BTI.
The first developer quoted above said that since China is a "cartelized economy" Indian developers have no choice except to pay a higher price.
Since the supply chain is controlled almost entirely by China, Indian solar developers are left with no option but to buy from them, the person said.
"The industry is procuring modules from the Chinese because presently there is no other option. As domestic industry picks up within the next two years, we will shift to domestic procurement," said Sunil Jain, CEO, Hero Future Energies.