The Ministry of New and Renewable Energy (MNRE) has confirmed India is imposing Basic Customs Duty (BCD) on imported solar cells and modules with effect from April 1, 2022. For solar cells with the code 85414011, the BCD level has been fixed at 25%; and for solar modules with code 85414012 it has been set at 40%.
This limit is way higher than what was reported by local media to have been on MNRE's mind back in June 2020 (see MNRE Details Basic Custom Duty Proposal For Solar).
As per the MNRE's office memorandum issued, there is no phasing of these duties over a period of time. It has directed all renewable energy implementing agencies and other stakeholders to include provisions in their bid documents whose bid submission date will follow this memorandum, to enable bidders to take this fact into account while quoting their tariffs.
"In all such bids, the imposition of BCD as per above trajectory shall not be considered as change-in-law," reads the MNRE order.
This move is sure to push up solar power tariffs in India which have gone down to INR 1.99 per kWh (see Historic Low For Indian Solar Tariffs @INR 1.99/kWh).
While this was expected by the industry at large, what's to be noted specifically here is that this imposition is also imposed on already bid out projects, something that MNRE says has been agreed by the Ministry of Finance. The statement from MNRE reads 'without grandfathering of bid out projects'.
Pointing out at the heavy reliance of India's solar sector on imports of solar equipment, the ministry defends its decision by saying that this step is needed for the country 'to develop domestic solar manufacturing capacities and reduce its dependence on imports to avoid disruption in future', aligned with the call for Atmanirbhar Bharat or self-reliant India.
Referring to the COVID-19 pandemic that triggered a disruption in the international solar module and cell supply chain in 2020, MNRE believes it affected solar capacity additions in the country, thereby negatively impacting power generation target achievement. Hence the need to lower this overwhelming dependence on imports.
"Scaling up of domestic solar manufacturing would also enable India to export solar cells/modules. This would also provide other countries an alternative avenue for procuring solar cells/modules," added the ministry.
India has a huge renewable energy installation target to meet by 2022 with a total expected capacity of 175 GW of which 100 GW is to come from solar alone. Going forward, the country has pledged to have 450 GW renewable energy installed capacity by 2030 out of which solar's share is estimated at 280 GW. "To achieve the target of 280 GW, around 25 GW of solar energy capacity is needed to be installed every year, till 2030," stated MNRE basis the Central Electricity Authority's (CEA) Optimum Energy Mix report. However, in 2020, a tiny fraction of this, 2.3 GW (see Mercom: India Installed 3.2 GW Solar In CY 2020).
While the decision is going to cheer domestic module makers, not all developers may not be so thrilled with it after all, as it will impact their ongoing project plans, pushing up project costs.