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'Safeguard duty on imported solar panels to put at risk projects worth Rs. 12,000 cr'

18-Jan-2018
'Safeguard duty on imported solar panels to put at risk projects worth Rs. 12,000 cr'

HYDERABAD, JAN 17:  Levying of 70 per cent provisional safeguard duty on imported solar panels and modules from China and Malaysia, as recommended by the Directorate-General of Safeguards, will put about 3 gigawatt (GW) of solar projects under implementation and worth over Rs. 12,000 crore at risk, according to Crisil.

In 2017, around 4GW of solar projects were auctioned and these would be under implementation now. Typically, orders for modules are placed with a lead time of one year. Assuming 1 GW of excess inventory to be in transit, about 3 GW of capacities would be yet to tie up their module requirements.

These projects were auctioned at low tariffs, so any rise in equipment cost after the safeguard duty would crimp the cushion that developers have to service debt.

Subodh Rai, Senior Director, Crisil Ratings, in a statement said, “The 70 per cent safeguard duty proposed will also inflate project costs by 25 per cent and crank up the viable tariff to Rs. 3.75 per unit from around Rs. 3 estimated earlier, making solar power less attractive to discoms. That would also be more than the average power purchase cost of 10 out of 14 discoms last fiscal.”

Modules account for about 55 per cent of a solar project’s cost, and 80 per cent of them are imported from China and Malaysia. With few alternatives available, the proposed safeguard duty would drive a sharp rise in the landed price of modules.

Typically, such projects have a ‘Change in Law’ clause under which developers can seek relief, but this is yet to be tested and will likely face legal and regulatory hurdles.

The Centre has been nurturing the renewable energy sector by taking conducive steps. Therefore, a timely final order resolving the duty uncertainty is necessary to balance the targets of renewable energy and the domestic manufacturing industry, while preserving the feasibility of projects under development.

The Ministry of Finance, through its Standing Board of Safeguards, will take a final decision on the imposition of safeguard duty either on the provisional or the final recommendations of the Directorate-General of Safeguards.

Manish Gupta, Director, CRISIL Ratings said, “Prolonged uncertainty on the quantum and timing of implementation of the safeguard duty will reduce developer interest in future bids and also impact investor confidence in terms of certainty of returns.”

Going forward, retrospective application of safeguard duty – on which the viability of over 3 GW of solar projects hinge – would be a key monitorable.

Source:- Thehindubusinessline.com

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