Safeguard duty on solar panels: One step forward, two steps backward

The Union Ministry of Finance has notified the Directorate General of Trade Remedies (DGTR) on 14 September 2018 of its decision to levy safeguard duty on solar panels imported from China and Malaysia.

This move has been initiated at the time when the government has set a target of achieving planned renewable energy capacity of 175 GW by 2022. With the cheap solar imports, the goal seemed to be more nearer than distant. Now with the announcement of safeguard duty, the solar projects might face delays in terms of execution.

As per a notification issued by the Indian government in July 2018, a levy of 25 percent (ad valorem minus anti-dumping duty, if payable) was imposed for imports in the first year starting 30 July 2018, and 20 percent and 15 percent for two subsequent six-month periods, respectively.

This move is expected to create short-term gains for domestic manufacturers, but on the other hand in the long run it can hamper the supply chain of the solar panels as manufacturing capacity at home has been downsized and delayed.

One one hand, the safeguard duty on import of solar panels is expected to raise tariff rates of solar projects in future. On the other, the import dependence for solar equipment in FY18, FY17 and FY16 has been more than 90 percent. The cheap imports had paved the way for achieving the renewable energy growth target of 175 GW. However, it undercut the interests of domestic solar power equipment companies.

As per the data represented by DGTR, India’s import of cells has jumped from 1,275 MW in 2014-15 to 9,790 MW in 2017-18. Imports from China and Malaysia account for nearly 90 percent of this total. On the flip side, India produced just 842 MW solar cells in 2017-18.

The developers as well as auctioning authorities can proceed with their planned projects after imposition of import duties. However, uncertainty persists in the process of approving cost pass-through for projects awarded prior to the announcement of duties.

As per a report by the Investment Information and Credit Rating Agency of India (ICRA), the imposition of the safeguard duty may lead to 15 percent increase in capital cost for a solar power project. However, the levy is only for a two-year period, and this is unlikely to cause any significant increase in the capacity of domestic solar module makers, which was the initial purpose of imposing the duty.

Besides, the Ministry of New and Renewable Energy is also set to cap India’s solar power tariff’s at Rs 2.5 and Rs 2.68 per unit for developers using domestic, and imported solar cells and modules. Also, if the bidder was found not paying the safeguard duty on imports then the solar tariff bid will be reduced by Rs 0.18 per unit and the ‘pass-through’ benefits will not be available to the developer.

Taking the above goal of encouraging the use of domestic solar equipment and lower solar tariff rates the Solar Energy Corporation of India (SECI) will bid in the lot sizes of 1,200 MW in future with no upper cap, and the minimum bid will be of 50 MW.

As per the data compiled by Projects Today, a total of 697 solar power projects entailing a total investment of Rs 2.37 lakh crore are in planning state or under various stages of implementation. Since the safeguard duty will impact the pace of solar power projects being developed in the country, the following are some of the big-ticket projects in terms of capacity coming up in the country.