Chennai: Rupee hitting an all-time low has become regular news off-late. With the country’s currency nose-diving and showing no signs of coming up, projects have been dropped from various fronts.
Nearly half of the solar power capacities under implementation, worth Rs 28,000 crore, face viability risk because of the continuous fall in the rupee, which has made imported solar modules costlier and increased the cost of setting up solar plants, rating agency Crisil has said.
According to the firm, these Rs 28,000 crore worth of solar power capacities include 5,500 MW of projects bid out in the past nine months at very low tariffs of Rs 2.75 per unit or less. These projects are in the early phase of implementation and unlikely to have bought solar modules, orders for which are typically placed nine-12 months after bids are won, it said. According to the agency, solar modules account for 55-60 per cent of the project cost of a solar plant, which is typically Rs 5 crore per MW.
“Today, over 90 per cent of them are imported. Our analysis shows that for every 10 per cent drop in the rupee, the cost of setting up a solar power plant increases by Rs 30 lakh per MW, assuming other factors remain unchanged,” said Subodh Rai, senior director, Crisil Ratings.
The rating agency further noted that developers typically do not hedge the exchange rate before placing orders for modules and therefore, what was anticipated for bidding at low tariffs and has also worked for the developers is the fall in module prices. The module prices have fallen by 17 per cent for these projects from 0.30 dollar per watt at the time of their bidding to around $0.25 per unit at present, a benefit of nearly Rs 34 lakh per MW, it said.
“But the arithmetic did not countenance a sharp depreciation in the rupee to more than Rs 73 per dollar, which has wiped off the gains from lower module prices. That, in turn, will compress the debt servicing cushion available for these projects,” the agency added.
For future projects, another risk according to Crisil is the levy of safeguard duty on imported solar modules of 15-25 per cent for two years, with effect from 30 July.
Apart from this, the decision to implement the duty will depend on the verdict of the Odisha High Court, which is hearing a petition by developers, it said.
“If the rupee remains weak and safeguard duty is also levied, project costs would dart up by as much as 20 per cent. In such a situation, viable tariff for future projects will have to be higher by 30 paise per unit,” said Manish Gupta, director, Crisil Ratings.
He noted that this would impact the government’s target of setting up 100 GW solar capacity by FY22 because discoms would balk at buying renewable power at higher tariffs. Moreover, Gupta said, lenders could also turn cautious to finance projects at a tariff of less than Rs 3 per unit due to their slim debt service parameters.
However, he said financially strong developers may be able to manage the risk to some extent by prudently funding projects with lower external debt component and bringing efficiencies in the operation and maintenance cost per MW because of scale and ability to negotiate with vendors.
India may put off higher import duties on US products again
The government, for the third time, is expected to postpone the deadline for the imposition of higher customs duties on 29 US products, including almond, walnut and pulses, by another 45 days, an official said.
The Commerce Ministry has asked its finance counterpart to extend the deadline for the rollout of duty hike further and a notification in this regard will issued soon, the official added.
In June, India decided to impose retaliatory tariffs from 4 August. But it was extended by another 45 days till 18 September and then till 2 November. The duty hike move by India was in retaliation to US President Donald Trump’s March 9 decision to impose heavy tariffs on imported steel and aluminium items.
Senior officials of India and the US are in discussions to finalise a kind of trade deal. Both the sides holding two track discussions – to increase trade in short and medium term, and identify long term trade potentials.
India is pressing for exemption from high duty imposed by the US on certain steel and aluminium products, resumption of export benefits to certain domestic products under their generalised system of preferences (GSP), greater market access for its products from sectors, including agriculture, automobile, auto components and engineering.