Fall in rupee against the dollar will see solar targets missed, predict analysts


Dark clouds are looming over Indian solar with a new report by ratings agency India Ratings and Research (Ind-Ra) predicting the nation will miss its solar and wind targets in the next fiscal year.

The Ministry of New and Renewable Energy (MNRE) has set a target of auctioning 34 GW of solar projects and 10 GW of wind next year but Ind-Ra says that target will not be met, mainly due to rupee depreciation, the safeguarding duty on Far Eastern products and grid connectivity issues.

“The solar auction target for FY19 may be missed, on account of frequent changes in the implementation of safeguard duty, apprehensions about grid connectivity and land acquisition-related bottlenecks. Also, a depreciating rupee, compared to [the] USD poses a threat to economical solar tariffs,” said Ind-Ra in a statement.

According to the agency’s report, the scrapping of solar auctions by the Solar Energy Corporation of India and several state nodal agencies has made bidders and lenders reluctant to participate in auctions. Tariff concerns could also derail the MNRE’s target of achieving 100 GW of solar capacity by FY22.

Lack of financing is a deterrent

High interest rates and rupee depreciation have discouraged a surge in capital market transactions on the debt side. Achieving financial closure for new renewable projects with highly competitive tariffs – and the refinancing of loans – may prove a challenge without sponsor backing, on account of the low margin for error, the report added.

Though PV generation achieved stability in the current financial year, merger and acquisition activity in the renewables sector has been sluggish in the last 12 months, with major players counting on enough capacity being available to bid for new projects, the Ind-Ra analysts state.

In a May report, Ind-Ra had warned a one rupee increase in the currency’s value against the dollar could lead to margin erosion of 2 paise per unit, given the lag between bidding and finalization of module supply.

In August, ratings agency Crisil said India will not be able to achieve its ambitious target of generating 100 GW from solar by 2022. In the best-case scenario, the country will touch 78 to 80 GW, against current capacity of 21.65 GW, Crisil’s industry research arm predicted.

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