Surging commodity prices and the introduction of a new duty on imported solar modules are expected to push up solar tariffs by more than one-fifth over the next year, finds a new report by JMK Research and the Institute for Energy Economics and Financial Analysis (IEEFA).
“The price and performance of modules are critical factors in project cost and, accordingly, in developers’ bids in solar auctions,” says report co-author JMK Research Founder, Jyoti Gulia.
Hikes in module prices due to a combination of rising prices for key raw materials and increased freight charges have led to higher tariffs discovered at solar auctions from early 2021.
The lowest winning solar bids between January 2021 and March 2022 have increased by an average of 22%, relative to India’s record-low solar tariff of Rs1.99 per kilowatt hour (kWh) (~US$0.03/kWh) in December 2020.
The report projects that solar tariffs will climb even further following the recent imposition of a basic customs duty (BCD) of 40% and 25% on imported solar modules and cells respectively, and the implementation of the Approved List of Models and Manufacturers (ALMM), a non-tariff barrier covering complying solar modules which excludes modules made outside India.
The report urges central and state government regulators to make a joint effort to address these policy hurdles by providing more clarity, for example, on how long BCD will be applicable on imported modules and whether the duty will increase or decrease on a year-on-year basis.
The authors analysed three scenarios to compare the implications for future tariffs of using domestically manufactured and imported modules. In the base case scenario, which assumes application of duty-free imported modules, the tariff is estimated to be Rs2.43/kWh (US$0.0323/kWh).
With imported modules, which are subject to BCD, the tariff would be Rs2.95 (US$0.039/kWh) – about 21% higher than the base case tariff.
If a developer was able to procure domestic modules, the tariff would be Rs2.26 (US$0.030) – a decline of about 7% compared to the base case tariff.
However, the authors say a substantial chunk of projects that are likely to be commissioned by 2024 will not be able to secure a supply of domestic modules due to the huge demand across segments, including rooftop solar, open access, utility scale as well as the off-grid market.