Falling Module Prices Fuel Solar Boom: Developers See Improved Returns

For solar project developers, who were previously squeezed by low tariffs and high costs, the sun seems to be finally shining bright. Stable tariffs and dramatically falling solar module prices are creating a sweet spot for the industry, leading to improved project economics and profitability.

Falling Solar Costs:

  • Module prices halved: The most significant factor is the dramatic decline in solar module prices. In just one year, module prices have almost halved, significantly reducing project costs.
  • Three quarters of cost reduction: This price drop has translated into a decrease in overall solar project costs for three consecutive quarters since January-March 2023, according to Mercom India Research.
  • Significant cost savings: In the September quarter alone, average large-scale solar project costs declined by 4.9% sequentially and a substantial 13.4% year-on-year.

Improved Profitability and Return Profiles:

  • Enhanced returns: The cost reduction directly improves the return profiles for project developers.
  • Attractive IRRs: As per Kotak Institutional Equities, most renewable projects operate with high leverage (70-80%) and offer attractive internal rates of return (IRR) of 12-14% on invested equity.
  • Boosted profitability ratios: Falling project costs are translating to higher profitability ratios for developers. ICRA reports an improvement of over 35 basis points in the debt service coverage ratio for solar projects using domestic modules with imported photovoltaic cells.

Potential Challenges: Competitive Landscape and Tariffs:

  • New competition: Market participants caution that the improved profitability could attract new entrants to the market, potentially driving down tariffs in upcoming auctions.
  • Tariffs to watch: The tariffs discovered in upcoming auctions will be crucial indicators of the future landscape for developers. While stable tariffs are currently a positive factor, any downward pressure could erode the current benefits.


Metric Change
Average Large-Scale Solar Project Cost (September Qtr 2023) -4.9% (Seq)
Average Large-Scale Solar Project Cost (Year-on-Year Change) -13.4%
Solar Module Price (Year-on-Year Change) -50%
Debt Service Coverage Ratio Improvement (Domestic Modules, Imported Cells) +35 bps
Project IRR 12-14%

Source: Mercom India Research, Kotak Institutional Equities, ICRA


For solar project developers, the current situation presents a rare opportunity. Stable tariffs combined with significantly reduced costs are leading to improved profitability and return profiles. However, it’s crucial to remain vigilant about the potential for increased competition and downward pressure on tariffs in the future.