Rupee Depreciation Adds to Renewable Energy Sector's Woes

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The Indian rupee’s recent fall against the U.S. dollar has added to the domestic renewable industry’s woes which is already struggling with rising prices, duties, and supply chain issues.

The rupee has been trading above ₹79 to the dollar, thanks to the surging dollar, rising imports, and foreign portfolio investors withdrawing money from emerging markets, including India.

Renewable energy project developers say the rupee depreciation will translate into a sharp jump in EPC (engineering, procurement, and construction) costs, leading to delays in project execution. Even a slight increase in the rupee-dollar exchange rate leads to a consequent increase in project costs.

Industry insiders told Mercom that the impact on EPC costs would be much more because of the significant exchange rate variation between the time of bidding and the finalization of the solar module supply agreement.


Goutam Samanta, Head, PV technology, Juniper Green Energy, said solar power developers would suffer an overall reduction in already modest margins. “Moreover, a major part of the project cost is incurred in dollars, whereas the revenue is derived in rupees. This exposes the bidder to the risk of inflation in project cost due to the fluctuating currency rates.”

Avinash Hiranandani, CEO & MD, Renewsys, concurs. “The depreciation will impact the entire solar value chain.”

The rupee value has depreciated around 13% in a staggered manner in the last four years. Indian solar manufacturers are trying to cope with the consequent impact on working capital. As Harsh Jain, Director, Citizen Solar, put it, “Along with the Indian rupee, the Chinese RMB has also depreciated. So, for a net import country like ours, along with the rupee, there is added price pressure from China. It is tough with BCD (basic customs duty) added to the mix.”

Industry bodies have in the past voiced concerns over the rupee’s volatility. In 2021, the National Solar Federation of India wrote to the Ministry of Power to consider the U.S. dollar rate escalation and its impact on bids to procure power round-the-clock from renewable energy sources. It had requested the ministry to amend the guidelines to allow escalation indices used for calculating levelized tariffs to be converted to rupees based on the exchange rate for that year.

It is not that the rupee depreciation alone is to blame. According to Jain, polysilicon prices have increased by 3-4%, leading to wafer/cell price hikes in the last three months. On the other hand, prices of aluminum and copper (copper ribbon used in solar panels) have crashed in the last few weeks.

“Recession has been looming in the background. The private sector demand has come down. The sentiment is changing, and customers prefer to wait since solar is a luxury at this point,” Jain said.

Waiting for the international market to ease is one way to cope with the contingency. Otherwise, given the short timeframe between negotiations and delivery, any cost impact will be passed on to the consumer. “Since the operating margins are very low, hedging is not possible,” Hiranandani said.

However, contingencies are not new to solar. Though the industry suffers from such blows, it has recovered with sudden positive changes.

Samanta feels that along with an allowance for hedging, suitable clauses must be incorporated in contracts to account for unpredictable changes in imported items, specifically modules or module balance of systems. “Higher power rated modules with latest technologies will play an important role in maximizing plant performance (enhancement of power output) and reducing costs.”

Though there is admittedly a deep worry building, developers and manufacturers are in a wait-and-watch mode for the time being.

The industry experienced a similar situation in 2018, but that phase did not last very long.