Roughly 90% of the solar cells and modules used in India are imported from China and Malaysia, which are cheaper than those manufactured locally. Photo: Bloomberg
Mumbai: Leading solar power developer Acme Solar, which set the record for the lowest solar tariffs last year, will pull out of recent solar park projects it has won if the state utilities it caters to do not cover the 25% safeguard duty now imposed on solar cells imported from China and Malaysia.
Acme has about 2000 MW of projects where construction is either on or yet to begin.
The Finance Ministry had on 31 July notified the imposition of 25% safeguard duty with immediate effect on imported solar cells and modules, ignoring a stay till 20 August on the order in favour of Acme Solar from the Odisha high court.
Following this, Acme Solar, Hero Future Energies and Vikram Solar filed petitions in the Odisha high court against the Directorate General of Trade Remedies for violating the court’s order.
Speaking to Mint, Shashi Shekhar, Vice-Chairman, Acme Group, said the fact that the safeguard duty was imposed with immediate effect has put ongoing and new projects in jeopardy. “The impact of the safeguard duty can be split into projects that are under construction – such as the Rewa (Madhya Pradesh) and Bhadla (Rajasthan) solar parks – are for about 2,000-3,000 MW, of which on average about 35-45% is ready,” Shekhar said. “The panels for these projects are either being manufactured, are ready to be shipped to India or are already in transit. For whatever is en route to India, we will have to pay the safeguard duty upfront at customs. That impact alone is about Rs 120 crore. For the rest, we’ve asked manufacturers to cancel our orders.”
The government believes that the safeguard duty will ensure a market for domestically manufactured products. Roughly 90% of the solar cells and modules used in India are imported from China and Malaysia, which are cheaper than those manufactured locally.
Based on the recommendation of the Directorate General of Trade Remedies, the Finance Ministry notified that the safeguard duty of 25% will be applicable for a period of one year from 30 July, followed by a reduction to 20% in the first six months of the second year and a further reduction to 15% in the latter half of second year.
Credit rating and research agency ICRA said in a recent report that this duty would result in an increase in the capital cost for a solar power project by 15%, which in turn would result in an increase in tariff by about 30-35 paise per unit to maintain a similar level of return for project developers.
“Even in the US,” Shekhar said, “when you impose a safeguard duty, you get 3 months’ time to complete ongoing projects or you can cancel the contracts. That is why we applied for the stay in the Odisha high court, so that we could bring in these panels before the guillotine falls.”
Technically, all taxes and duties imposed on a developer are passed through to the final buyer of the power that is generated, that is, state distribution companies (discoms). However, developers are wary of state governments actually agreeing to shoulder this additional cost.
“The central government hasn’t taken the state governments’ consent on whether they are willing to bear the burden of the safeguard duty. Even now, NTPC and SECI (Solar Energy Corporation of India) are contesting refunds on the GST that we pay, and the GST was introduced as a constitutional amendment,” Shekhar added.
Nikunj Ghodawat, CFO, CleanMax Solar, another solar power provider, said: “What surprises the industry is the implementation of safeguard during the stay from the court…More than 10,000 MW of solar panels are imported annually from China and Malaysia and this application of the safeguard duty would adversely impact commercial viability of some solar power projects.”
Ketan Mehta, co-founder of solar EPC company Rays Power Infra, told Mint that the safeguard duty has put a spanner in the works for its plans to ramp up its residential rooftop solar installations. “Our rooftop installations will now be delayed by at least six months. Today, the average residential rooftop installation for 3-5 kilowatts costs Rs 1.8-3 lakh. We foresee costs going up for end users of rooftop installations by at least 15% because of the safeguard duty.”
Acme met with finance ministry officials a week ago asking them to excuse under-construction projects from the safeguard duty. “We’ve also asked the Ministry of New and Renewable Energy to get every states’ agreement that they will bear the additional cost of the duty (over and above the declared tariff) in projects where construction hasn’t begun. If that doesn’t happen, these projects will have to be cancelled,” Shekhar added.