MINT | ‘Need more contingency in PPA pricing for solar power amid rising costs’

SYNOPSIS
You see more local supply chains starting to also take place in India, which I think will create a more stable cost, says Thomas Brostrom, Shell’s Global Renewable Generation EVP.

The comments by Shell’s Global Renewable Generation EVP Thomas Brostrom come against the backdrop of high cost of solar power development in India due to the customs duty on modules and high price of equipment.

In an interview, Brostrom said the global energy giant tries to ensure adequate capex while making bids and that its solar projects and those in the pipeline have so far not been impacted by the shortage of modules.

With Shell Plc buying Actis Llp’s Indian renewable energy platform Sprng Energy at an enterprise value of $1.55 billion, he noted that currently, the market is witnessing relatively volatile and extreme conditions due to inflation and supply chain bottlenecks.

Nitin Prasad, chairman, Shell Companies in India, said the impacted power developers in the current scenario have not just been affected by the price hike on solar modules but also by the land purchase deals they have done and the execution of the projects. Edited excerpts:

How has the recent rise in solar module prices due to the customs duty and the supply chain issues impacted your projects?

Brostrom: I think what we’re seeing now is of course relatively volatile, almost extreme conditions. When you have inflation and supply chain bottlenecks, then you have to be very careful about how you match your PPA price with your capex (capital expenditure). And you also have the commodity prices which have been only going one way. We can see it’s starting to normalize a bit more, so we’ll hopefully get back to more normal conditions over the next six, 12 or 18 months. But in the interim what we’ve been doing, not so much in India, because we’re very new here, is basically going back to our customers to say ‘hey, we need to have another discussion around our PPA because in this market, the things have changed dramatically’. So, I think that’s just been the nature of it. You see more local supply chains starting to also take place in India, which I think will create a more stable cost. Again, it might be slightly off because some of the components might be slightly more expensive compared to China. But I think over time, you will see more stable price development. What we’ve been doing is, we have as much certainty as we can on the capex. And of course, then on the PPA price, you may have to have a bit more contingency, and I think that’s just how you navigate this market. But my hope is that in the next period, you’ll see it starting to come back to a bit more normal circumstances again and we’ve seen the same thing in the US with all the tariffs and the dumping issues we’ve had there as well.

Prasad: What you are referring to is perhaps the economic sensitivity of some of our competitors, which is broader than I think just the modules and of course the modules have had their part to play as well as the prices. But I would also say, there's also financing structures..how they've gone about doing the land purchases and how they actually come back and execute and that's actually why we like Actis-backed platform Sprng and why we chose to acquire them—because they have demonstrated tremendous capability to be the most competitive in this marketplace. It was really one of the reasons why we really liked them, and we continue to believe that we will be more competitive as we go forward.