Many of the batch II solar projects under Phase I of India’s Jawaharlal Nehru National Solar Mission (JNNSM) have been deemed a risky proposition in a new research report by India based CRISIL Research, says a PV Magazine report.
There are concerns that new developers won’t be able to complete their photovoltaic park plans due to the low bids submitted. The organisation stated that falling photovoltaic module prices and overcapacity led by Chinese module suppliers have impacted heavily on capital costs for projects. “In 2011, the capital costs of Solar Photovoltaic (PV) projects fell by 30 per cent, following a 50 per cent decline in the prices of solar PV modules,” wrote the analysts.
They said, however, that due to the sharp margin erosion this prompted, combined with increasing industry consolidation, module price drops are expected to slow this year, meaning that capital costs should decline by just 10 to 13 per cent, to Rs 87 million to Rs 90 million per megawatt this year.
However, anticipating bigger decreases, some project developers submitted aggressive bids to the JNNSM’s Phase I Batch II program–as low as Rs 7.49 per Watt, said CRISIL – which will place pressure on their margins unless they can access low cost foreign debt.
“For healthy equity internal rate of returns (IRRs) of around 15 per cent, a levelised tariff of Rs 9 per unit is necessary, assuming a plant load factor of 19 per cent and typical debt equity of 70:30, with borrowing costs of nearly 13 per cent,” stated the report. However, as around half of the bids have been below Rs 9 per unit, many of the investments are highly risky.