The depreciating Rupee, if unhedged, will impact investor returns in the bidding for solar power projects in the event of a significant exchange rate variation between the time of bidding and the finalisation of module supply agreement. The exchange rate deteriorated 5 per cent year-on-year in May 2018, when the bids were hovering around Rs 2.5 per unit.
“A Re 1 increase in Rupee-Dollar exchange rate leads to a 2 paisa per unit increase in tariff. For instance, if the rupee depreciates to 67 from 65 between the time of tariff bidding and the finalisation of terms of payment for module supply — which can easily extend to 6-8 months — the solar power developer will suffer an overall 4 paisa per unit reduction in margin, which is significant considering the modest margins for solar developers,” said Ankur Agarwal, Senior Analyst at research and ratings agency India Ratings. Read More