The rising cost of solar modules and steel, combined with higher logistics costs, will impact the 5 gigawatt solar capacity being rolled out in the private sector, Crisil Ratings said Wednesday.

In a statement, the rating agency said: ”A sharp increase in the prices of solar modules and raw materials such as steel, as well as rising freight costs, will lead to a decline in return on equity ( ROE) of almost a fifth of the 25 GW private solar capacity. This 5 GW capacity was mainly offered between October 2020 and December 2021 and is currently being implemented.” The projects totaling 5 GW have been offered at relatively low tariffs of less than Rs 2.35 per kilowatt-hour ( kWh) at a time when module prices were falling and commodity prices were benign. These projects could see their ROE decline by 140 to 180 basis points to around 7%, he said.

In the statement, Manish Gupta, Senior Director of CRISIL Ratings, said: “The remaining 20 GW capacity projects will also be affected, but their comparatively higher tariffs and partial coverage of module cost will limit the impact to 60 -80 basis points. . Most of these projects are in advanced stages of implementation and have imported or immobilized a certain proportion of modules at prices below the current level.” According to the statement, solar modules contribute in the range of 55-60% at the cost of a solar project, and the prices for it increased by 40% from January last year to March 2022.

Steel contributes 5-10% to the total cost of a solar project, while its rates have increased by 25% during the said period.

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