Safeguard duty may not hit ongoing solar projects

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Amid fears of a proposed safeguard duty on imported solar cells thwarting India’s solar mission, the government wants to ensure that the duty is prospective in nature, and does not impact ongoing solar projects, a top official in the renewable energy ministry said.
After directorate general of safeguards (DGS) this week proposed 70% safeguard duty citing “serious injury” to the domestic industry on account of increased imports, there have been concerns of solar project costs going up by as much as 40% if the duty is levied.

The Indian government has set itself an ambitious target of installing 175 GW of renewable energy capacity by 2022, of which 100 GW is to come from solar projects.

An inter-ministerial committee led by secretaries of commerce, revenue and new and renewable energy will meet shortly to consider the possibility of a safeguard duty.

MNRE secretary Anand Kumar said his ministry is clear that if a safeguard duty comes, it should be prospective in nature and not affect projects which have already been bid for.

"We have to take a judicious view, considering our manufacturing capacity, our requirements and whether such a duty will affect our programme," Kumar told ET.

The Indian solar industry is concerned about project costs and solar tariffs going up on account of the proposed duty, the burden of which will ultimately be borne by the end consumer.

“If a safeguard duty is imposed, the capex would increase by about 40% to 45%, burdening developers. Ultimately, tariffs may go up by 40-50% of the present levels,” said Manoj Gupta, vice president, solar business (India & Asia), Fortum India. Solar modules account for about 60% of the total project cost.

Gupta said discoms will be further dissuaded from signing power purchase agreements if the tariffs hover around ₹4.75 per unit, and the project pipeline will again dry up.

Sector experts pointed their views in a similar direction.

“All other things being equal, we expect a tariff rise of about 35% or between ₹0.85-1.00 / kwh. But we feel many discoms would walk away from projects rather than paying higher tariffs,” said Vinay Rustagi, managing director of solar consultancy firm Bridge to India.

Rustagi said that the sector seems to be going through a “policy paralysis” at the moment, which may slow down new investments.

“There are a lot of mixed signals from the government’s end. There has to be some clarity on the policies,” said Gyanesh Chaudhary, managing director, Vikram Solar, a module manufacturer and solar EPC player.

Chaudhary said the purpose of imposing safeguard duty should be to protect domestic industry from goods being dumped at below market prices. But in case of domestic manufacturers situated on special economic zones, the levy yields counterproductive results.

Chaudhary said the data points considered in the DGS report are outdated, calling the 70% levy a “bit extreme”.

The proposal for safeguard duty came after industry body Indian Solar Manufacturers’ Association (ISMA) filed a plea stating that solar imports were dealing a blow to profits and employment in the domestic manufacturing industry.

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