While the government’s decision to impose a safeguard duty on the import of solar cells from China and Malaysia could benefit domestic manufacturers, it will do a lot of damage to existing solar projects that have already factored in the cheaper imports into their pricing, according to industry players and analysts.
The government implemented a 25% safeguard duty on solar cell imports from China and Malaysia for the period between July 30, 2018 and July 29, 2019.
Thereafter, the duty is to decrease to 20% for the six months following that period, and further to 15% in the subsequent six months.
“The import duty prima facie has been placed in order to encourage local solar panel manufacturers in the country in a push to the ‘Make in India’ effort,” Mysun, a major rooftop solar developer, said in a statement. “However, with the majority of top solar projects using these imported panels especially from China, this will, at least in the short term, create choppy waters. Add to this the confusion surrounding GST, the solar industry has a fight on its hands.”
‘End users to bear costs’
“More than 10,000 MW capacity of solar panels are imported annually from China and Malaysia and this application of the safeguard duty would adversely impact the commercial viability of some solar power projects,” Nikunj Ghodawat, CFO at CleanMax Solar said.
“The increased tariffs will be ultimately passed on to the customers, hampering the adoption of clean energy.”
Further, the manner in which the safeguard duty is implemented is also problematic, according to Gyanesh Chaudhary, MD and CEO of Vikram Solar, who said that the duty does not provide any relief to developers in SEZs.
Vikram Solar has also filed a writ petition in the Orissa High Court seeking a stay against the imposition of the safeguard duty.
“In light of the SEZ issue, the notification defeats the very purpose of a safeguard duty, which is to protect and promote domestic industry,” Mr. Chaudhary said.
“While it may seem logical that SEZs should be exempted, considering that the whole purpose of applying safeguard duty is to protect domestic industry against imports..., why should they pay these duties? Unfortunately, policy makers seem to be in dilemma.”
Government as buyer
One alternative method to promote the domestic industry, according to Ajay Mathur, director general of TERI, is for the government to procure at competitive rates solar power generated from units only using domestically manufactured panels. “Levying of safeguard duties may not help the domestic industry,” Mr. Mathur said.
“It would, on the other hand, increase cost of solar power, making it less attractive to buying utilities, and thus jeopardising the pace of growth of development of solar power,” he added.
“A better option for promoting domestic industry is for the government to competitively procure, for its own use, solar electricity generated from only domestically manufactured panels.”
Another criticism of the government’s decision is that the period of two years will not be enough to actually benefit domestic manufacturers.
“The imposition of safeguard duty for a short period of two years is unlikely to lead to any significant increase in the domestic solar module/cell manufacturing capacity in the near term,” ICRA said in a report, in which it also said tariffs are likely to rise 30-35 paise per unit due to the duty.
“For projects already bid out, the amendment to bidding norms approved in April 2018 allowing pass-through of changes in taxation, duties and cess would allow the developers to pass through the tariff increase to off-takers,” Sabyasachi Majumdar, group head, corporate ratings, ICRA said.
“However, timely approval by the regulators and pass-through of the tariff increase to the off-takers is critical from the cash flow perspective of project developers.”
Crisil, in a report, added that despite the increase in tariffs due to the safeguard duty, solar energy’s cost competitiveness compared with most other sources would mean that the sector would not see much of a slowdown in capacity addition.
However, it did add that there could be some near-term delays in project implementation.
