MNRE awarded around 10.5 GW of capacity to Solar Power Developers in 2017-18, when the rupee hovered around 64-65 per USD. The Rupee has now depreciated to 67-68 per USD.
New Delhi: The depreciating Rupee, if unhedged, will impact investor returns in the bidding for solar power projects in the event of a significant exchange rate variation between the time of bidding and the finalisation of module supply agreement. The exchange rate deteriorated 5 per cent year-on-year in May 2018, when the bids were hovering around Rs 2.5 per unit.
“A Re 1 increase in Rupee-Dollar exchange rate leads to a 2 paisa per unit increase in tariff. For instance, if the rupee depreciates to 67 from 65 between the time of tariff bidding and the finalisation of terms of payment for module supply — which can easily extend to 6-8 months — the solar power developer will suffer an overall 4 paisa per unit reduction in margin, which is significant considering the modest margins for solar developers,” said Ankur Agarwal, Senior Analyst at research and ratings agency India Ratings.
The Ministry of New and Renewable Energy (MNRE) awarded around 10.5 Gigawatt of capacity to Solar Power Developers in 2017-18, when the rupee hovered around 64-65 per USD. The Rupee has now depreciated to 67-68 per USD. India imports around 90 per cent of its solar module requirements. Solar modules account for nearly 60 per cent of the total solar project cost.
Analysts say most of the projects do not hedge Rupee, given the short time frame between negotiation and delivery period. India Ratings’ study is based on the premise that the Solar Project Developers will pass on the full impact of the increase in project cost arising from Rupee depreciation to the consumer.
The recent round of auctions conducted by NTPC for 750 MW of solar power has witnessed winning tariffs of Rs 2.72-2.73 per unit. “If the Rupee depreciates to 72 from the current around 68, the SPD will incur a loss of about 8 paisa per unit until the actual payments, as currency fluctuation is not covered by the procurer under ‘Change in Law’ or any other clauses under the power purchase agreement (PPA),” Agarwal said.
He added the SPDs may also opt for reducing direct current to alternating current overloading ratio due to increased module costs, thereby negatively impacting the project’s generation performance. Also, any sharp fall in Rupee could lead to delays in project execution, if the SPD opts to renegotiate the module supply contracts to keep the costs at same levels as assumed for financial closure.
The trend of decline in Dollar rates of solar panels and modules is now reversing and a depreciating Rupee could be another hindrance to cheaper solar tariffs in India. The Rupee has depreciated around 7 per cent since the beginning of 2018.
MNRE had last month issued a clarification to the guidelines for tariff-based competitive bidding for procurement of power from grid-connected solar PV projects. To bring further clarity, duties and cesses were added in the scope of ‘Change in Law’ clause as per model PPA, apart from revising the tax rates. The move has brought clarity for bidders as they will be compensated for any import duty or safeguard duty or cess applicable post the bidding date.
The winning bidder, however, remains exposed to the risk of inflation in project costs due to the fluctuating currency rates, as revenue under PPA is derived in Rupee, whereas a major chunk of the project cost is incurred in Dollars.
Source: energy.economictimes.indiatimes
