The imposition of the 25% safeguard duty on solar cell imports will raise power tariffs and have significant implications on the renewable capacity addition programme, a section of solar plant developers and domestic manufacturers have said.
The step is seen to increase solar tariffs by 50 paise per unit, as per CARE Ratings, effectively discouraging electricity distribution companies (discoms) from buying solar power going ahead.
The government imposed a 25% safeguard duty on import of solar cells — the basic ingredient needed to manufacture solar panels — for a year, ending July 19, 2019. The duty would be 20% for the next six months till January 29, 2020, and 15% in the subsequent six months.
A section of the industry is surprised with the decision as the Orissa High Court had put a stay on the imposition of safeguard duty till August 20. “Either the order is probably erroneous, or the stay was vacated in the Supreme Court, but we have to inform the HC,” Shashi Shekhar, vice-chairman of Acme Group, told FE. He also said solar tariffs being cheaper than fuel cost of coal-based electricity was one of the primary reasons behind discoms opting for green power and the duty would discourage cash-strapped state-owned entities.
Apart from developers, the duty is expected to hurt domestic manufacturers based in special economic zones (SEZ), which currently accommodate 40% of 10 giga-watt (GW) of solar module manufacturing units and 60% of 3 GW of cells production base. “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 near term, research agency Icra said.
“The government should exempt SEZ to domestic tariff area clearance of solar cells and modules,” said Gyanesh Chaudhary, CEO, Vikram Solar.
Solar power developers, on their part, have requested the government for exemption from payment of duty for closed projects. Shekhar Dutt, director general, Solar Power Developers Association, said this would provide relief to the industry to an extent. Sources said that developers also want the government to allow to start project execution only after the states have officially agreed to buy power at the new prices.
Though renewable energy minister RK Singh has said multiple times that the duties, if imposed, should be implemented prospectively, and tax regimes, as per the day of the bidding, would prevail, developers are not sure of their practical implementation.
Sunil Jain, CEO, Hero Future Energies, told FE that the approval process of passing through higher duties and taxes to tariffs is a lengthy and painstaking process with firms still knocking the regulators’ door to allow GST rates to be passed through.