The Indian rupee fell to a new low.
The Indian rupee has hit a record low of 70.32 per cent against the dollar, the first time in history to break the 70 mark, as fears persist over last week's economic crisis in Turkey. One weakness of the rupee as a currency in India is that India is a net importer and needs more dollars each year to continue to buy goods. Similarly, this downturn is not a good omen for the Indian solar industry, which relies on imports.
2017, India's solar industry PV modules and battery imports of nearly 4.12 billion U.S. dollars, compared to the previous year exports of 2.88 billion U.S. dollars increased by 43%.
The solar industry is being strained by the devaluation of the Indian rupee, as an increase in the dollar's exchange rate would result in an increase of 0.02 rupees per unit tariff.
PV modules in solar systems account for 50% to 55% of total project costs in India, and are more susceptible to exchange rates because of imported products priced in dollars.
Up to 80% of the components, local few or no substitutes, thereby increasing the cost.
If the project developer chooses to renegotiate the component supply contract to keep costs at the same level as the financial settlement assumes, the project will be delayed for completion. Currency fluctuations are not within the scope of the purchaser's ' legal change ' and are not in any other terms under the Electricity purchase Agreement (PPAS). Experts believe that if the rupee further depreciation to 72 rupees: 1 U.S. dollars, then the developer will pay about 0.08 rupees/unit losses until payment.
Worse, because negotiations and delivery times are usually relatively short, the project will not hedge against currency losses associated with the rupee.
Ankur Agarwal, a senior analyst at research and rating agency India ratings, said a further devaluation would not only affect investor returns, but would also lead to an increase in tariffs, which developers could expect to pass on to consumers on the cost increases.
At the same time, revenue under the electricity purchase agreement is denominated in rupees, and most of the project costs are in dollars, and the risk of project cost inflation persists due to currency fluctuations, Mr Agarwal added. Since the beginning of 2018, the rupee has depreciated by about 10% per cent, and any other terms under the purchaser's contract, "legal change" or the Electricity Purchase Agreement (PPAs), are not insured. The devaluation of the rupee is another factor in the development of a project, and if the risk is not hedged, the cost of debt will increase and developers are under great pressure.
