Solar capacity addition may fall by 40 per cent in FY19: Report

Solar capacity addition in the current fiscal year is likely to fall by 40 per cent compared with last year considering the slow tendering and awarding of projects in the last 12-15 months, according to a report.

A 40 per cent decline of about 4,000?4,500 megawatt (mw) of solar capacity addition is expected in FY19 as compared to FY18, according to rating agency Icra.

Girishkumar Kadam, sector head and vice president, Icra said the estimated decline is mainly on account of subdued trend in tendering of solar projects since June 2017 in the midst of several factors such as GST, upward pressure on PV module price levels and uncertainty on safeguard duty and anti-dumping duty among others.

The subdued trend is also evident from the fact that only 4,500 mw capacity was auctioned and awarded in calender year 2017 as against 7,300 mw in 2016, he added.

The agency noted that with the recent amendment in bidding norms for solar projects by the ministry of new and renewable energy (MNRE), there is now clarity on pass-through of import duty and other such duty under 'change in law' which is a positive for the solar developers.

However, it said the quantification of actual tariff changes by the State Electricity Regulatory Commissions and the timeliness of the same will remain critical from the cash flow perspective of the affected developers.

"Moreover, the retrospective applicability of such duty under change in law remains critical for projects which have been recently awarded in bidding route from the viability perspective of such projects," it added.

The report revealed that the weighted average solar bid tariff declined sharply to Rs 3 per unit during 2017 from Rs 5 per unit in 2016 on expected decline in PV module price level, long term debt availability at cost competitive rate and aggressive bidding by power producers.

"Though the declining solar bid tariff levels remain favourable to state discoms, the hardening of module prices over the last 6-9 months period along with import duty incidence on module imports, has led to viability related concerns especially for the projects with tariff below Rs 3 per unit, also given the uncertainty on safeguard duty front, according to Kadam.

In this context, the agency said, the viability of such tariffs critically hinges on structuring of debt with longer tenures, competitive funding costs and the ability of the project developers to keep the cost of modules within the budgeted levels.