The Finance Ministry's notification to impose safeguard duty on imported solar panels would raise tariffs of future projects in India and impact the competitiveness of the power sector, a research institute said.
The Energy and Resources Institute said the move was also likely to result in higher Average Power Purchase Cost (APPC) for buying utilities and higher costs to the consumers.
Over 90 per cent of solar panels and modules used in Indian solar projects come from China and Malaysia, and the proposed safeguard duty was intended to protect domestic solar panel production from impacts due to increased imports, the TERI said in a statement.
"Levying of safeguard duties may not help the domestic industry. It would on the other hand, increase cost of solar power, making it less attractive to the buying utilities, and thus jeopardising the pace of growth of development of solar power, which otherwise needs to be boost up at this juncture to achieve national targets for solar capacity and our commitments - the Nationally Determined Contributions - to the UN Climate Convention," said Ajay Mathur, Director General of TERI.
"A better option for promoting domestic industry is for the government to competitively procure, for its own use, solar electricity generated from only domestically manufactured panels," he said.
As per the Ministry of New and Renewable Energy (MNRE), the present domestic manufacturing capacity of solar cells and solar modules is about 3.1 GW and 8.8 GW, respectively, whereas the 1.5 GW of solar cells and 2-3 GW of solar panels are installed annually; only 10 per cent of the installations use domestic cells and modules.
The safeguard duty notification is based on an investigation carried out by the Directorate General of Trade Remedies (DGTR), which had recommended the imposition of 25 per cent safeguard duty on solar panels from China and Malaysia for one year, followed by 20 per cent for the next six months and 15 per cent for another six months.
This investigation was in response to a complaint from the Indian Solar Manufacturing Association (ISMA) that cheap imported solar modules were adversely impacting the domestic solar industry.
Based on the financial model on the pattern of the Central Electricity Regulatory Commission (CERC) with reduced rate of interest for debt, impact of the proposed safeguard duty at 25 per cent ad valorem add about 15 per cent to the levelised cost of electricity (LCOE).
This would make the solar tariff higher than the APPC in some states, and thus make it less attractive to electricity distribution companies, which may then not be favourable to purchasing solar electricity, thus endangering the pace of growth of solar power and the achievement of national targets.
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