The Indian solar industry has always seen aggressive bidding by multiple companies who were looking to build up their asset portfolio. Given the downward trend of solar panel prices, most developers used to bid on a forward-looking basis assuming that solar panel prices would fall by 5-10% when the projects ultimately got built. This assumption has held true for the last few years when solar energy capacity in India exploded with solar prices falling below that of coal.

However, extrapolating the past into the future is not always a great investment strategy and the same is there for solar projects bidding. Though solar panel prices have fallen sharply in the second half of 2018 due to a reversal of the Chinese subsidy, the developers have not been able to use those gains as the rupee has fallen faster. The INR has fallen by almost 10% in the last six months negating most of all in solar panel prices in USD terms. While the solar panel has fallen from 30 cents/watt to around 24-25 cents/watt, the developers have not been able to take advantage of the falling prices. On top of this currency depreciation, the interest costs have gone up by 1-1.5% in the last few months as global rates have hardened with the US Fed raising interest rates regularly as the US economy has been firing on all cylinders after the huge corporate tax rate cut.

While a lot of the bids of nine months ago was in the range of INR 2.8/kWh, the projects being built now need INR 3/kWh to make a decent return. This is causing a problem for the developers who had bid at that point of time. While they are closing the financials as well buying the panels now, they face much higher prices than earlier. On top of these issues is the recent financial crisis caused by the failure of IL&FS which was one of the biggest financers as well as a developer of infrastructure in India. Lending towards infrastructure has tightened significantly with most of the private players being reluctant in lending towards renewable energy. This is leading to a slowdown in the solar space as even the demand side is facing problems with distribution utilities not willing to sign power purchase agreements to buy the solar power.