After staying relatively stable in the past year, module prices are on the decline again. Prices of multi-crystalline modules, still the de facto choice for most Indian developers, have fallen from USD 0.23/ W to USD 0.20/ W in the last six months. Cost delta between low efficiency modules and high efficiency mono-PERC has also halved to about USD 0.02/W. Alongside fall in module prices, inverter prices and balance of system (BOS) costs have been falling steadily too (see chart below). As a result, total EPC cost including safeguard duty of 20-25% on modules and 8.9% effective GST has fallen by 13% to INR 27.60/ Wp in the same period.
- Module prices are falling steadily as supply is rising sharply but international demand remains stagnant;
- Short-term cost outlook is positive with prices expected to reduce further through early 2020;
- The industry needs to guard against risk of disruption in international trade policies, logistics or foreign exchange markets due to high dependence on equipment imports;
The module price fall owes mainly to continued demand slowdown in China. After touching a high of 53 GW in 2017, demand has been falling steadily with latest estimates for 2019 suggesting annual capacity addition at only about 25 GW. Demand has risen elsewhere, most notably in Europe, where solar capacity addition has doubled in the last two years to touch an estimated 20 GW this year. Aggregate global demand is believed to stay broadly flat at about 120 GW. In contrast, the module manufacturers have been expanding ferociously. Some of the latest numbers coming out of China, in particular, are mind boggling – Jinko, the industry leader by shipment volumes, expects to supply 20 GW modules next year, up from just 4.5 GW in 2015. LONGi is considering expanding its module manufacturing capacity from 9 GW in 2018 to 30 GW by 2021. Most other leading players including Canadian Solar, Trina, First Solar, JA and Risen are planning similar scale expansions.
Figure: Total EPC and component cost trends
Source: BRIDGE TO INDIA research
Notes: Cost data is shown using Q1 2018 numbers as benchmark. For modules and inverters, we have used CIF price before any local tax or duty. Total EPC cost includes GST and safeguard duty as applicable.
Outlook on the cost front remains positive. Prices are expected to reduce further through early 2020. Safeguard duty on modules and cells would also fall to 15% in January 2020 and be phased out completely by the end of July 2020. That alone would reduce EPC cost by 12%.
Amid all the recent doom and gloom in the sector – PPA renegotiation, delayed payments, undersubscribed tenders, debt financing challenges – fall in capital costs provides welcome respite to the developers. It should help in improving financial returns and raising capital for the projects. However, over-dependence on China raises the risk of potential disruptions in international trade policies, logistics and foreign exchange markets.
