NEW DELHI: The Solar projects with a cumulative planned capacity of as much as three gigawatt (GW) face the risk of delays and penalties due to the new coronavirus outbreak.
According to a report from CRISIL, the projects worth Rs 16,000 crore, could attract penalties for missing their respective scheduled commercial operation date (SCOD) if the outbreak continues to keep trade volumes with China low.
“India sources around 80 per cent of its solar modules from China, where trade has been impacted due to measures implemented to combat the spread of the virus,” the agency said, adding that measures like restricted movement of people and shut down of factories have disrupted module manufacturing in country and its feeder industries.
“Given that orders for modules are typically placed with a lead time of six months from SCOD, these projects are now in the process of either placing orders or receiving delivery of modules. Hence, any delay at this stage can prove costly,” warned Manish Gupta, Senior Director, CRISIL Ratings.
According to current power purchasing agreements in force, time overruns will attract penalties of Rs 20 crore per day if the delay is lesser than 30 days, Rs 80 crore per day for delays between 31-90 days and downward tariff revisions in the case of longer delays.
If power project developers choose to stick to their timelines by importing modules from other sources, they are likely to incur significantly higher project costs. “In a bid to meet the commissioning timelines, the developers may choose to implement projects with more expensive modules sourced from locations other than China. But this could erode returns as the modules may be 15-20 per cent costlier, shaving as much as 3 percentage points off their returns,” CRISIL noted.
PPAs also allow developers to invoke a ‘Force Majeure’ clause, under which they can seek relief under unforeseen and uncontrollable events.
Legal hurdles possible
The ‘Force Majeure’ clause is yet to be tested and may face legal and regulatory hurdles. CRISIL’s credit outlook will be sensitive to any significant delay in opening up of trade with China, and consequently, delays in project implementation.