Rise in module, steel and freight costs to hit 5 GW solar capacity under implementation: Crisil

Increased cost of solar modules and steel combined with higher logistics cost will impact 5 giga watt solar capacity under implementation in the private sector, Crisil Ratings said on Wednesday.In a statement, the ratings agency said A sharp increase in the prices of solar modules and commodities such as steel, together with rising freight costs, will pull down the Return On Equity ROE of nearly a fifth of the 25 GW private solar capacity.

Increased cost of solar modules and steel combined with higher logistics cost will impact 5 giga watt solar capacity under implementation in the private sector, Crisil Ratings said on Wednesday.

In a statement, the ratings agency said: ''A sharp increase in the prices of solar modules and commodities such as steel, together with rising freight costs, will pull down the Return On Equity (ROE) of nearly a fifth of the 25 GW private solar capacity. This capacity of 5 GW was mostly bid out between October 2020 and December 2021 and is currently under implementation.'' The projects totalling 5 GW were bid at relatively low tariffs of less than Rs 2.35 per kilowatt hour (kWh) at a time when module prices were softening and commodity prices benign. These projects may see their ROE falling by as much as 140-180 basis points to around 7 per cent, it said.

In the statement, Manish Gupta, Senior Director, CRISIL Ratings, said: ''The remaining 20 GW capacity projects will also be hit, but their comparatively higher tariffs and partial cover on cost of modules will limit the impact to 60-80 basis points. Most of these projects are in advanced stages of implementation and have imported or tied up some proportion of modules at prices below the current level.'' According to the statement, solar modules contribute in the range of 55–60 per cent to the cost of a solar project, and prices of the same have increased 40 per cent from January last year to March 2022.

Steel contributes 5–10 per cent to the total cost of a solar project, while its rates have risen by 25 per cent during the said period.

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