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Safeguard duty on solar cells likely to increase bid tariffs, says ICRA


Press Trust of India New Delhi
Safeguard duty imposed by the government on imported solar cells is likely to push up solar bid tariffs and may not increase domestic manufacturing capacity of these items in the near term, credit rating firm Icra said today.
Following the recommendations of the Directorate General of Trade Remedies (DGTR), the finance ministry issued a notification yesterday, imposing 25 per cent safeguard duty on solar cells (assembled into modules or not) imported from China and Malaysia.
Sabyasachi Majumdar, Group Head - Corporate ratings, Icra, said: "The imposition of safeguard duty is likely to increase the bid tariffs to Rs 2.9-3.1 per unit for the upcoming bids. For the project already bid out, the amendment to bidding norms approved in April 2018 allowing pass-through of changes in taxation, duties and cess would allow the developers to pass through the tariff increase to the off-takers.
"However, 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."

The solar bid tariffs have largely remained below Rs 3 per unit this year, varying between Rs 2.44 and Rs 2.75 a unit, with expectation of favourable price movement in PV modules following the policy changes in China.
Majumdar said in a statement that 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 module prices owing to the policy changes in China.
Moreover, he said that the duty is unlikely to lead to any significant increase in the domestic solar module/ cell manufacturing capacity in the near term.
The safeguard duty of 25 per cent 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 second year and further to 15 per cent in the latter half of second year.
The notification also states that the safeguard duty would be lowered to the extent of levy of anti-dumping duty (if any).
Icra said that this would 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 to 35 paise per unit to maintain a similar level of returns for project developers.
In a separate statement, Rahul Prithiani, Director, Crisil Research, on the Solar Safeguard Duty said: "An increase in capital costs means solar becomes less competitive as compared to wind power, which averaged Rs 2.80 per unit in fiscal 2018 and has also seen tariffs as low as Rs 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, he said.
In another statement, Gagan Vermani, Founder & CEO, MYSUN said that in one stroke, the Indian solar industry has been pushed back by a couple of years.
The cost of solar projects will straightaway go up by 14 to 15 per cent, which would not only derail the on-going projects but will also dampen the new pipeline, he said.
"The safeguard duty is only for a period of two year, it doesn't seem to solve the issue of domestic manufacturing either. For that to happen, the investors would look for a long-term policy road map from the government. So in nutshell, this safeguard duty is a regressive step and government should reconsider this move at the earliest," Vermani said.

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First Published: Jul 31 2018 | 4:35 PM IST

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