70% Safeguard Duty Detrimental For 3 To 4.5 GW PV

Credit Ratings Agency CRISIL Warns 3 GW PV & Billions Could Be At Stake With 70% Safeguard Duty Implementation; Bridge To India Puts The Number At 4.5 GW
03:44 PM (Beijing Time) - 19. January 2018
n_mar_Asia_India_Safeguard Duty Detyrimental For 3 To 4.5 GW PV

everal MWs of solar power project capacity could be at risk in the event of safeguard duty of 70% imposed in India, according to industry experts.

Key Takeaways

  • 3 GW of PV project capacity could be endangered if the Indian government decides to go ahead with the implementation of 70% safeguard duty on imported modules from China and Malaysia
  • CRISIL warns it could also mean investment of more than 120 billion INR ($1.88 billion) could be at risk
  • Such a move could take up project costs by 25% and viable tariff could touch 3.75 INR ($0.0587) per kWh; landed price of modules from the stated countries could also increase sharply
  • Bridge to India (BTI) says 4.5 GW of PV capacity could be at risk if developers are not given any relief on projects already awarded or auctioned
  • BTI also says rooftop and open access solar will be worst affected if the safeguard duty is over 20%

If the Indian government decides to implement the recommendation to implement 70% safeguard duty on imported solar panels and modules from China and Malaysia, it could endanger the future of 3 GW PV projects. All this project capacity will threaten investment of more than 120 billion INR ($1.88 billion), says global analytics company, CRISIL.

 Retrospective application of safeguard duty, ‘on which the viability of the 3 GW of solar projects hinges’, will be a key monitorable, it says.

 The Directorate General of Safeguards, Customs and Central Excise has recommended imposing this duty in a preliminary finding for a period of 200 days (see India Contemplating 70% Safeguard Duty).  

The 70% safeguard duty proposed will also inflate project costs by ~25% and crank up viable tariff to 3.75 INR ($0.059) per unit from around 3.00 INR ($0.047) 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,” said Subodh Rai, senior director of CRISIL Ratings.

The agency notes that around 4 GW of solar power projects were auctioned in 2017. These will be currently under implementation. Order for modules is placed a year in advance. “ Assuming 1 GW of excess inventory to be in transit, about 3 GW of capacities would be yet to tie up their module requirements,” it points out.

Any such step from the government will also increase the ‘landed price of modules’ as 80% of these are imported from China and Malaysia currently. Even though the projects have a clause of ‘change in law’ that can offer some relief to the developers, but taking this road may mean legal and regulatory hurdles for them.

Bridge to India: Private rooftop PV and open access market to be worse affected

In case of the proposed 70% safeguard duty imposition, market intelligence firm Bridge to India (BTI) believes the worst affected segments will be rooftop and open access solar. The volumes may decline by as much as 50% if there is any duty over 20%. These are the segments where progress is as it is very slow.

It suggests that developers are now hoping for the final decision on the duty to be delayed for as long as possible, or that they get relief for projects already auctioned and awarded. BTI says if such relief is not offered, 4.5 GW may be at risk of becoming unviable and/or abandoned.

The Ministry of Finance has to take final decision on the matter, which according to BTI could take about 8 to 10 months to come.

Both BTI and CRISIL warn that uncertainty about the percentage of duty and the timing of its implementation is bound to reduce developer interest in future bids and will also dampen investor confidence, leading to slow down in the activity.

 

Anu Bhambhani

Anu Bhambhani is the News Editor of TaiyangNews

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Anu Bhambhani