Budget 2018: Proposed 70% Safeguard Duty May Derail Govt's Ambitious Solar Plans
Speaking at the World Economic Forum at Davos on January 22, Prime Minister Narendra Modi put a special focus on India's solar dreams. It was in November 2017 that PM Modi had announced an ambitious plan to have an installed capacity of 175 gigawatts (gw) of renewable energy by 2022. Of this, 100 gw will be in the solar energy segment. However, as of December 15, 2017, India had an installed solar capacity of 16.68 gw. Will India be able to achieve this dream?
What is it that the sector would need from the upcoming Union Budget to help fulfill this dream?
Breather in safeguard duty
The solar industry, in particular, is concerned about what the future holds due to the proposed 70 per cent safeguard duty on import of solar power equipment. This, the industry experts think, will increase the energy tariff by almost Re 1 and will also be a deterrent to the under-construction solar projects.
It was on January 10 that the Directorate General of Safeguards Duty, in its report on dumping of solar cells, had suggested a 70 per cent safeguard duty on the imports made from China. These imports were hurting the domestic manufacturing industry.
According to the industry estimates, this duty will impact solar projects of 3,000-4,000 megawatt (mw) capacity, worth Rs 15,000 crore. At present, solar cells and modules, that make up for the 60 per cent cost of the total project, are either in transit or the import deal has been signed.
This would directly impact the projects auctioned particularly in 2017, as these were bidded for much lower tariffs. Any rise in the cost of equipment will hurt the project developers' debts.
"The proposed 70 per cent safeguard duty will also inflate project costs by 25 per cent and crank up viable tariff to Rs 3.75 per unit from around Rs 3 estimated earlier, making solar power less attractive to discoms. That would also be more than the average power purchase cost of 10 out of 14 discoms last fiscal," Crisil Ratings Senior Director Subodh Rai told the PTI.
Clarity on import duty
Now that the Modi-led government aims to install 175 gw by 2022, the industry seeks clarity on import duty. According to the industry experts, India imports 80 per cent of the solar panels and modules from China. Although this needs to be curbed, but not by keeping the ongoing projects at stake.
According to rating agency ICRA, there needs to be a clarity on the import duty for PV modules. It also believes that the high duty may lead to projects that have achieved financial closure, with nearly 70 per cent of the cost being funded through debt, becoming non-performing assets. This will only further delay the projects and the overall plan.
With inputs from Housing News