India set for 16 GW of solar this fiscal year amid falling module prices

Solar installation faced delays in fiscals 2022 and 2023 due to the Covid-19 pandemic and efforts to protect the Great Indian Bustard bird, resulting in project extensions. However, with falling module prices, the end of pandemic disruptions, and clarity on bird protection measures, Crisil analysts anticipate accelerated solar project execution by fiscal 2026. The reversal of falling module prices in the last quarter of fiscal 2021 impacted project returns, affecting 20 GW of projects auctioned in fiscals 2021 and 2022 within the 45 GW solar project pipeline.

“If implemented as per schedule, the average IRR of 20 GW projects auctioned during fiscals 2021 and 2022 could have fallen to as low as 5%, with some even becoming unviable on a standalone basis,” said Ankit Hakhu, director of CRISIL Ratings. “However, the pandemic-linked extension in the scheduled commissioning dates provided relief to these projects, giving developers a chance to defer module purchases.”

With a 30% reduction in module prices as of September 2023 compared to the previous fiscal's average, analysts anticipate a potential 300-500 basis points improvement in project IRR to an average of 9%. The assumption includes project financing at a 75:25 debt-to-equity ratio, P50 plant load factors of 26% to 27% AC, an interest rate of 9.5% on under-construction and 8.5% on operational phase debt, along with interest income of 4% on reserves and cash balances.

“Softer module prices will also benefit 25 GW of capacities bid during and since fiscal 2023,” said Varun Marwaha, associate director of CRISIL Ratings. “These 25 GW of projects had higher bid tariffs … as they factored in higher module costs, and should see their IRR improve.”