Safeguards duty to take heat off solar units
Solar industry is about to face the same fate the imported coal-based power projects encountered years back — change in law and regulatory battles to pass through increased cost due to imposition of safeguards duty on solar panels.
Close to 7,000 Mw of under construction and recently bid projects will see their costs go up and would have to revise their tariffs accordingly.
The Indian government announced imposition of safeguards duty on imported solar cells and modules for two years – 25 per cent will be applicable for 12 months from now, followed by 20 per cent for six months and 15 per cent for balance in the subsequent six months. The duty would specifically impact the solar panels coming from China, as more than 85 per cent of India’s solar capacity is built on Chinese panels.
The solar industry had calculated this duty imposition would lead to an escalation of 50-60 paisa in the final solar tariff. This, the project developers said, would lead to tariff revision for several recently bid and under construction projects. The safeguard duty is a passthrough cost i.e. the project developer can pass it on their final power sale price.
ACME Solar, which quoted ~2.44 per unit for 600 Mw capacity in Rajasthan this month, is expecting an increase in per unit cost by 57 paisa after duty imposition. The company has asked the ministry of new and renewable energy and SECI – the nodal agency for holding solar project auctions – to file for tariff revision on behalf of project developers and convince states to purchase at new high tariff.
“We don’t know if the power distribution companies would purchase solar power ~3/unit. There is a long-drawn process to get regulatory nod for tariff revision. No bank gives money till the tariff is finalised. The cancellation of several power purchase agreements (PPAs) by states is inevitable,” said Shashi Shekhar, vice chairman of ACME Group.
Coal power projects have seen massive fluctuations in price and availability of coal. This led to litigation over cost pass through and quantum of increase in the power rate, landing several projects in debt trap. Industry executives fear the same could happen in the solar sector if there is no stability on tariff and clarity on regulations.
Power project developers are expecting close to 7,000 Mw of projects to land in soup owing to change in tariff, regulatory process and likely cancellation of PPAs by states who would find the increased tariff costly. The duty imposition would also increase the cost of solar projects, which would be bid hereafter.
India aims to add 100 GW of solar power capacity by 2020, which entails adding close to 25GW for three years. India’s current solar power capacity stands at 20 GW of the total renewable capacity of 70 GW.
During 2016-17, Shekhar said, states became comfortable in purchasing solar power as tariff fell below ~2.5 per unit. “It helped them replace the variable tariff of costly thermal power which they had to pay. But with solar also breaching ~3 power unit, there is no incentive.”
CRISIL observed that an increase in capital costs would make solar less competitive as compared to wind power, which averaged ~2.80 per unit in fiscal 2018 and has also seen tariffs as low as ~2.43 per unit.
“However, overall capacity additions may not be materially impacted as cost competitiveness of solar with other sources, barring wind, remains high, though there could be some near-term delays in project implementation,” said Rahul Prithiani, director, CRISIL Research in a latest report.