New Delhi: In what may further exacerbate India’s stressed power project situation, solar capacities totaling ₹28,000 crore face viability risk due to imported solar modules becoming costlier, with the continuous fall in the rupee, ratings agency Crisil Ltd said on Monday.

Most solar power developers in India have been sourcing solar modules and equipment from countries such as China, where they are cheaper. This has resulted in domestic manufacturers accounting for only around 10% of the market despite India having an ambitious 175 gigawatt (GW) clean energy target by 2022, of which 100GW is to come from solar projects.

“Nearly half of the solar power capacities under implementation worth ₹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. These include 5.5GW of projects bid out in the past nine months at very low tariffs of ₹2.75 per unit or less. These projects are in the early phase of implementation and are unlikely to have bought solar modules, orders for which are typically placed 9-12 months after bids are won,” the Crisil Ratings report said.

“Our analysis shows that for every 10% drop in the rupee, the cost of setting up a solar power plant increases by ₹30 lakh per MW, assuming other factors remain unchanged,” Subodh Rai, senior director, CRISIL Ratings, added in the statement.

The rupee being Asia’s worst performing currency of the year has put Indian developers in a difficult spot. India achieved a record low solar power tariff of ₹2.44 per unit in May 2017. India has also imposed a safeguard duty on solar cell and module imports from China and Malaysia. A majority of Indian developers have been placing orders with Chinese manufacturers because of their competitive pricing. For China’s solar module manufacturing capacity, estimated to be around 70 GW per year, the major markets are the US, India and China itself.

“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% for these projects from 0.30 dollar per watt at the time of their bidding to around 0.25 dollar per watt at present (a benefit of nearly ₹34 lakhs per MW). But the arithmetic did not countenance a sharp depreciation in the rupee to more than ₹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 Crisil report said.

This assumes importance for the Indian power sector given that it is one of the highly stressed sectors with close to ₹1 trillion of loans having turned sour or been recast. Also, lenders have an exposure of around ₹3 trillion to these assets in the backdrop of slow electricity procurement over the last three to four years. According to RBI, the total outstanding loans of scheduled commercial bank to the power sector including renewable stood at ₹5.65 trillion as on March 2018.

“Also, developers typically do not hedge the exchange rate before placing orders for modules,” the Crisil report added.

India, the world’s third-largest energy consumer after the US and China, is running the world’s largest clean energy programme. However, concerns around India’s emerging green economy remain due to the weak credit quality of off-takers such as state-owned distribution companies.

“If the rupee remains weak and safeguard duty is also levied, project costs would dart up by as much as 20%. 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 in the statement.

India’s ministry of new and renewable energy is also planning to cap India’s solar power tariffs at ₹2.5 and ₹2.68 per unit for developers using domestic and imported solar cells and modules, respectively.