Duty on solar cell imports may not lead to big capacity

The government's move to impose safeguard duty on solar cell imports for two years may not lead to a significant increase in the solar cell/module manufacturing capacity in the near term, according to Icra.

However, it may result in an increase in the capital cost for a solar power project by 15 per cent, which in turn would result in an increase in tariff by about 30-35 paise per unit to maintain a similar level of returns for project developers, the rating agency said today.

On recommendations by the Directorate General of Trade Remedies, the finance ministry on Monday imposed 25 per cent safeguard duty on solar cells (assembled into modules or not) imported from China and Malaysia.

The duty will be applicable for a period of one year from July 30, 2018, followed by a reduction to 20 per cent in the first six months of the second year and further to 15 per cent in the latter half of the second year.

The notification also states that the duty would be lowered to the extent of levy of anti-dumping duty (if any).

"While the imposition of safeguard duty on imported solar cells and modules would improve the competitiveness of domestic module manufacturers, the extent of benefit is likely to be constrained by the recent fall in the imported PV (photovoltaic) module prices owing to the policy changes in China," the rating agency said.

Moreover, the imposition of duty for a short period of two years is unlikely to lead to any significant increase in the domestic solar module/cell manufacturing capacity in the near term, it added.

The solar bid tariffs largely remained below Rs 3 per unit this year so far, varying between Rs 2.44 and Rs 2.75, with expectation of favourable price movement in PV modules following the policy changes in China, according to Icra.

However, the agency estimates the imposition of safeguard duty may increase the bid tariffs to Rs 2.93.1 per unit for the upcoming bids.

For the project already bid out, the amendment to bidding norms approved in April allowing pass-through of changes in taxation, duties and cess, according to Icra, would allow the developers to pass through the tariff increase to the off-takers.

However, it said the timely approval by the regulators and pass-through of the tariff increase to the off-takers is critical from the cash flow perspective of the project developers.