Chinese Vendors Give Indian Solar Farms A New Headache During Pandemic
India’s solar power producers face an unexpected increase in costs during the pandemic as Chinese module makers want to renegotiate prices.
China’s Longi Green Technology Co., the world’s biggest producer of solar cells, said in a statement that suppliers were renegotiating contracts as prices of modules have surged 35% as the cost of polysilicon, glass and silver paste rose. Higher freight rates due to shortage of shipping capacity during the pandemic also fuelled hikes.
The clarification came after multiple media reports, including from the Economic Times, said that Chinese suppliers unilaterally cancelled contracts with Indian power producers. The problem is that Indian solar firms have bid and won projects from the Solar Energy Corporation of India quoting lowest possible fixed tariffs.
Solar modules account for nearly half the cost of a power project. And imports from China meet about 80% of the demand in India. The nation, home to some of the world’s most polluted cities, has been focusing on increasing the share of solar and wind power in its energy mix.
Chinese vendors renegotiating contracts is extremely worrisome for the industry, especially projects to be commissioned between July 2021 and March next year as this would lower yields, said a senior executive at one of the largest renewable power producers in India—he didn't want to be identified out of business concerns. Lack of alternatives means the producers will have to take a hit on their margins, he said, adding that Chinese firms have increased prices by at least 15-20%.
Subrahmanyam Pulipaka, chief executive officer at industry lobby National Solar Energy Federation of India, admitted that the sudden surge in module prices has disrupted Indian supply chain when local firms are already under pressure during the pandemic. While the association will soon approach the Ministry of New and Renewable Energy, he said Chinese vendors seeking higher prices has the potential to cause a big dent for the industry, which will be forced to pass on the burden to utilities and eventually to consumers.
Indian power producers continue to be heavily dependent on Chinese makers for solar modules; and if not modules, then wafers—a thin slice of semiconductor used for the fabrication of integrated circuits and, in photovoltaics, to manufacture solar cells, SL Agarwal, managing director at Websol Energy Systems Ltd., a maker of solar cell that imports components from China.
Most of the Chinese vendors shut units over the last two-three years due unviability, giving a few players the pricing power. Together with costlier raw materials, that has increase prices of modules by more than 35-50%, he said.
The cost of the solar power project cost works around Rs 3.7 crore per megawatt, according to Rohit Natrajan, associate vice president, Antique Stock Broking. Typically, photovoltaic modules represent 40-45% of the overall project cost, he said.
Assuming a 20% cost increase in module prices, keeping other things constant, a project’s internal rate of return can fall by 0.5%, said Natrajan.
While solar module manufacturing is nascent in India, the government is looking to boost domestic production. Under the production-linked incentive scheme, it approved Rs 4,500 crore for high-efficiency solar photovoltaic modules. It also imposed imposed 40% basic customs duty on solar modules and 25% on solar cells from April 1, 2022. Companies like Adani Group, Tata Power Ltd., Websol, and Jupiter have already announced plans to start manufacturing solar cells and modules in India.
Chinese products are still cost effective for an Indian developer, according to Natarajan. The domestic modules are currently priced at 29-30 cents per watt-peak, while imported modules cost 23-24 cents, he said.
Rahul Gupta, managing director of Indosolar Ltd., which has filed for corporate insolvency, said China owns 90-95% of the overall world’s capacity. India, he said, is still a few years away to be self-sufficient given patchy policy, a rather long timeline and an uncertain demand portfolio.
A potential game-changer would come when public sector companies like Gail India Ltd. and Coal India Ltd. undertake renewable energy business in a serious way, Gupta said.
Chinese players, however, are also considering manufacturing in India. Longi has been planning to set up a production base in India and preliminary preparations are underway, according to its statement. The company has already acquired land.