A sharp increase in the prices of solar modules and commodities such as steel, together with rising freight costs, will pull down the return on equity (ROE) of nearly a fifth of the 25 GW1 private solar capacity. This capacity of ~5 GW, was mostly bid out between October 2020 and December 2021 and currently under implementation. These projects may see their ROE falling by as much as 140-180 basis points to around 7%2.

These projects, totalling ~5 GW, were bid at relatively low tariffs of less than Rs 2.35 per kilowatt hour (kWh), at a time when module prices were softening and commodity prices benign.

Says Manish Gupta, Senior Director, CRISIL Ratings, "The remaining ~80% of projects under implementation (~20 GW) will also be hit, but their comparatively higher tariffs and partial cover on cost of modules will limit the impact to 60 - 80 basis points. Most of these projects are in advanced stages of implementation and have imported or tied up some proportion of modules at prices below the current level."

CRISIL Ratings | www.crisil.com