Select Page

Despite a sudden upward revision of prices of solar equipment supplied to Indian developers, experts say this move by Chinese firms is temporary and there’s no cause to be overly concerned

Indian solar projects face a cloudy outlook in the short term. (Photo by Pixabay)

Indian solar projects face a cloudy outlook in the short term. (Photo by Pixabay)

India’s sunlight sector is coping with not just rising prices of Chinese solar modules but also the challenge of Chinese manufacturers reneging on their contracts and demanding an upward price revision to supply equipment that has been contracted for already. Fears have been expressed that the price increases will adversely affect the internal rate of return of solar projects in the country.

The fears might be overblown, industry experts say. Many solar developers entered into future supply contracts for Chinese solar modules, anticipating a continuous drop in prices, a government official said. “These contracts captured on-going pricing minus a delta (reduction). Now, with a trend reversal, the delta, instead of reducing, is adding up. Hence, it would not be correct to put the entire blame on manufacturers,” he told “Chinese solar modules are seeing a hardening of prices for the first time in years, with the average selling price going up in India on a quarterly basis since the last 12 months.”

Refuting concerns, clean energy consultant Ritesh Pothan adds, “I think it is basically a very positive thing because that way the focus will shift to local manufacturing. Right now, the focus is only on the cheapest that they can probably buy. For example, every module manufacturer has different workshops for different qualities, so the cheapest gets the worst quality in the name of material.”

Currently, Indians pick up the cheapest material that they can get from the Chinese, Pothan told In turn, the Chinese never say no, they don’t negotiate and give the worst quality possible, he contends, adding that one cannot hold the Chinese to their warranty and they keep going bankrupt all the time.

Wake-up call

Therefore, it is a good wake-up call for the industry, which needs to shift focus from the cheapest equipment and pay attention to quality instead, Pothan said. “You can put the cheapest plant, the lowest tariff, but that will result in safety, quality and reputation issues, whereas the industry needed to take a step back and to understand that cheapest is not equal to the best always,” he said. “Quality is definitely a big concern from China and in India as well.”

“I haven’t heard of anyone who has backed out of the contract for supply of solar cells,” Mudit Jain, senior manager at clean tech consultancy firm Bridge to India told “It could be the case of module suppliers not honouring the contract for supplying equipment to the developers or the EPC (engineering, procurement and construction) players.”


It is not module manufacturers but solar projects under construction that are getting impacted big time, reasons Jain. The fall in solar tariff has multiple elements to it, but the biggest factor is forward pricing assumed for the module. Also, developers have assumed a much lower module price at the time of bidding that what is currently being offered. In the last 3-4 years, module prices fell at a faster rate than what the developers have accounted for.

Changed scenario

Ultimately, the projects looked lucrative and both investors and lenders were satisfied. However, this time, things have gone in a different direction and the module prices have already increased by around 20% in the past four months. “Till April end or May, it was as per expectations, but after that things changed,” said Jain.

Since module prices have been increasing, it has become a seller’s market and Chinese manufacturers are backing out from the initial quotes that they had given 4-5 months ago. Presently, if developers are going to enter into an agreement and there is even a slight change in terms of releasing the advance, the chances are that the order would be cancelled and the price could change, Jain said.

It is however true that module prices are increasing and they are on an upward trend. “As a result, the on-going projects could face a troublesome situation with lenders. If the loan has been sanctioned by taking into account earlier quotations and module price agreement has a cost escalation, it would lead to a tricky situation,” Jain told “If the loan amount is not increased, such an escalation will have to be funded by equity.”

Flawed assumption

Aggressive bidding in an effort to capture market share with the assumption that component costs will continue to fall no matter what has been a flawed assumption, the official said. Such aggressive bidding has been witnessed in the solar sector to the extent that Indian lenders are finding it difficult to fund these projects at such low tariff. Foreign lenders may see some interest with cheaper borrowings in US dollars or Japanese yen and have an edge over their Indian counterparts, whose cost of borrowing may be higher by 4% to 7%.

Solar bids appear to tread a similar trend like Build Operate Transfer (BOT) in the roads sector, where aggressive bids led to projects getting stalled with commercial unviability coupled with delays, which ultimately led to stoppage of BOT projects in the roads sector. It is feared that with the on-going trend, solar development could also go up the same path unless some sanity prevails and developers are made accountable for the pricing they factor in, the government official cautioned.

Government stays away

Reacting to this development, an official in the Ministry of New and Renewable Energy (MNRE) told “It is not a government to government thing, but an industry to industry thing. So, it can be a case with not just China, but any other country where the industry is located. Suppose they have an absolute contract which provides for revision in the tariffs or revision in the cost, depending upon the market condition over the period, then that always goes as per the tender.”

The government may not be in a position to say anything on this issue and it would not even like to intervene at this point in time. It will be counter-proactive looking at the geo-political situation as of now and nobody will do that till the time it goes into arbitration in any of the cases, the ministry official clarified.

Way ahead

Despite issues that prevail, industry experts believe they will soon pass to pave way for better times ahead. Jain feels that the market is expected to stabilise by October or November. “The main cause for this price escalation is the demand from the US. However, the US couldn’t possibly absorb all the manufacturing from top Chinese suppliers and most of the modules could be stocked based on speculation of potential anti-dumping or safeguard duties.”

Pothan stresses that the focus on cheaper products needs to go away and instead, the need of the hour should be on creating a sustainable value chain that is reliable and consistent. “The focus must be on building better infrastructure.”


Share This