Renewable Energy Players to Face Tough 2022 as Price Volatility Threatens to Impact Yields: Study

The relentless global recovery in raw material prices and transportation costs, coupled with the Indian government’s decision to impose tariffs on module imports from April next year, threatens to intensify this price increase again, a development that could have a significant impact on the returns of renewable energy (RE) players. in 2022, an independent study found.

The study, Clean Energy Investment Trends 2021, from the CEEW Center for Energy Finance (CEEW-CEF) and the International Energy Agency (IEA) estimates that a 20% increase in the prices of the modules produced, compared to to those assumed in the most competitive tariffs (₹ 1.99 / kWh discovered in December 2020) could reduce stock returns by around 45%.

“Rising prices for photovoltaic (PV) modules, driven by higher raw material and transportation costs, could significantly reduce realized returns compared to expectations. Besides supply chain factors, the decision of the Indian government to impose basic tariffs (BCD) on imports of cells and modules from April 2022 is likely to prompt several developers to move forward. their module purchases to exceed the deadline, which could further increase the upward pressure on module prices, ”the study said.

The study further explained that given current inflationary pressures, realized returns may also be affected by construction and equipment costs. Modules typically represent around 50 to 60 percent of total investments and therefore changes in realized prices from those assumed can have a big impact on realized returns.

The analysis period (July 2020-June 2021) was characterized by considerable volatility in module prices. Prices began to rise in mid-2020 due to disruptions at major Chinese production facilities for polysilicon, a key intermediate in the solar PV value chain. Prices stabilized towards the end of 2020, with bidders taking into account aggressive module pricing assumptions as India hit record solar tariffs in November and December.

However, prices started to rise again as the global economic recovery put pressure on supply chains. Firming commodity prices, rising freight costs amid a global container shortage, and supply chain limitations specific to solar PV (shortage of polysilicon and toughened glass) have pushed up prices across the board. during the first quarter of 2021. As a result, the supply contracts were concluded at 0.19 $ / Wp (Watt peak) in December 2020 were renegotiated at 0.23 $ / Wp barely a quarter later.

According to a report from Mercom India, the average cost of large-scale solar projects in the third quarter of calendar year 2021 (CY) increased 23% year-on-year to around 4.24 crore (around $ 559,828 / MW). On a sequential basis, costs increased 10% from 3.86 crore (approximately $ 509,433 / MW).

The consulting company attributed the price hike to an increase in shipping costs for solar components. Transportation costs, which have followed an upward trajectory since the Covid-19 outbreak, have negatively impacted the importation of solar modules into India. Another problem is the shortage of containers, creating problems with importing raw materials from China.

Going forward, the CEEW-CEF and IEA study said that the government’s decision to impose BCD on imports of cells and modules from April would likely encourage developers to push ahead with their purchases. modules to exceed the April deadline. Strong demand could keep upward pressure on the landed price of modules in India as the new year approaches. These changes could result in higher module prices than those taken into account at the time of the call for tenders and therefore represent risks of a fall in the internal rate of return on equity (EIRR) achieved.