At one hand – election in some states and on the other hand – the COVID– 19 pandemic have of late kept the nation engaged. However, the Indian solar power community is struggling with a different kind of challenge now.
While presenting the national budget 2021-22, the Finance Minister Nirmala Sitharaman said that – it has the twin objectives of promoting domestic manufacturing and helping India get on to global value chain and export better. She said that the thrust now has to be on easy access to raw materials and exports of value added products. In this regard, she proposed to review 400 old exemptions in the custom duty structure this year. She announced that extensive consultation will be conducted and from 1st October, 2021, a revised custom duty structure free of distortions will be put in place. She also proposed that any new custom duty exemptions henceforth will have validity up to the 31st March following two years of the date of its issue.
Particularly, in regard to the renewable energy segment, the Finance Minister also added that – a phased manufacturing plan for solar cells and solar panels will be notified to build up domestic capacity. She announced raising duty on solar inverters from 5 per cent to 20 per cent and on solar lanterns from 5 per cent to 15 per cent.
The current challenge
However, on 9th March, an Official Memorandum (OM) from the Ministry of New & Renewable Energy (MNRE), signed by Sanjay G Kamdhar, Scientist-D; mentioning subject as “Imposition of Basic Customs Duty (BCD) on Solar PV Cells & Modules/ Panels,” has created an apparent wave of dissatisfaction & apprehension among the solar energy implementing agencies and other stakeholders.
The letter states: “As part of Paris Climate Agreement, India has committed to achieve forty per cent of its installed electricity capacity from non-fossil fuels by 2030. For achieving this goal, India has set an ambitious target of 175 GW of installed Renewable Energy (RE) capacity, including 100 GW of solar power, by 2022. India has also set a target of 450 GW installed RE capacity by 2030. As per the Central Electricity Authority’s Optimum Energy Mix report, the electricity requirement of the country by 2029-30 will be 817 GW, including the 450 GW from renewable energy sources, out of which 280 GW would come from solar energy. To achieve the target of 280 GW, around 25 GW of solar energy capacity is needed to be installed every year, till 2030.
Presently, India’s solar sector, just like in any other country of the world, is heavily reliant on imports of solar equipment. Government has also noted instances of certain countries dumping solar cells and modules to kill the nascent domestic industry, because of which Government had to impose Safeguard Duties. COVID-19 pandemic brought disruptions in international trade including imports of solar modules and solar cells affecting solar capacity additions in the country. Considering India’s huge solar targets and that electricity is a strategic sector of the economy, India needs to develop domestic solar manufacturing capacities and reduce its dependence on imports to avoid disruption in future.
The Atmanirbhar Bharat initiative has geared up the country toward scaling up domestic manufacturing. Scaling up of domestic solar manufacturing would also enable India to export solar cells/modules. This would also provide other countries an alternative avenue for procuring solar cells/modules.
The following proposal of MNRE to impose BCD on solar cells and modules (without grandfathering of bid out projects) has been agreed to by the Ministry of Finance.
The Ministry of Finance has also advised that the customs notification in this regard shall be issued at appropriate time.
Ritu Lal, Senior VP & Head Institutional Relations, Amplus Solar
In view of above, the undersigned is directed to inform all RE implementing agencies and other stakeholders, to take note of above trajectory and to include provisions in their bid documents, so that bidders take the trajectory into account while quoting tariffs, in all bids where the last date of bid submission is subsequent to this GM. In all such bids, the imposition of BCD as per above trajectory shall not be considered as change-in-law.
This issues with the approval of Hon’ble Minister (NRE & Power).”
Selected views from the RE industry
Commenting on the MNRE’s decision, Ritu Lal, Senior VP & Head – Institutional Relations, Amplus Solar, said, “High import duties will certainly lead to a significant increase in the cost of generation across all solar segments. Import barriers can only be temporary measures. Eventually, Indian manufacturing will succeed only if we are able to compete in the global marketplace – in terms of price, technology and scale.”
Focusing on the probable implication of the step, Pinaki Bhattacharyya, CEO & MD Amp Energy India, commented, “This move will slow down the race towards the 175 GW target by 2022 i.e., next year. Although this removes considerable uncertainty but the rates are too high and will increase the cost of solar power for DISCOMS and consumers alike. This will increase the cost of production of power as well as other industries in India. We understand that the intent of the government is positive and they want to encourage domestic manufacturing but the method should have been different. The government should have provided direct manufacturing subsidies to manufacturers to help them scale up their capacities and this would have been beneficial to the segment.”
Considering short-, mid- and long-term effects of the plan, Amit Barve, Business Unit- Head of Solar at Panasonic Life Solutions India Pvt. Ltd., informed, “The pre-announcement of applicable duty structure has been a welcoming change, which is planned to be imposed on imported solar cells and modules w.e.f. 1st April 2022. For the stakeholders this window is very useful; especially, for ensuring proper planning by several stakeholders, being mindful of the duty impact on imports and installation post 1st April 2021. In the short term, we would see a spike in the import of solar cells and modules in a big way to secure imports for the projects that have already been planned with imported components – and would like to see that these components are in India before duty gets levied. In the mid-term, this is a wonderful opportunity for Indian stakeholders who have been sitting on fence of a decision – whether they should invest in the manufacturing of solar components now or at a later stage.
Currently, all the required ingredients for investing in the manufacturing of solar components are available, which are: 1) Market with the huge pipeline (in GWs) of projects in various stages of execution; 2) Tremendous commitment and support from the Government of India for market growth in the coming years; 3) Long term visibility of market; and 4) Long term policy and commitment for deployment of solar energy.
We have already seen a spurt of investment announcements in solar manufacturing in India – and this trend will only go upward in coming years ahead. Long-term this would help the sector with the growth of the ecosystem related to the solar industry getting established in India reducing our dependence on imported components to a larger extent.”
Pinaki Bhattacharyya, CEO & MD AMP Energy India
A deeper look
It is obvious that when import will be a costlier option, the domestic manufacturers of solar cells and modules will have a much bigger opportunity to increase their shares in the pie. Also, domestic competition and zeal for enhancing the brand name will improve the quality of the products as well as service. More demand too will help them enjoy the benefits of economies of scale.
Drawing attention on its long-term potential, Barve said, “This will be a great opportunity for the Indian solar component manufacturers to consolidate their position not only for India but also for starting building world-class manufacturing setups, which can start exporting solar components across the globe. Also, this is the best time for Indian manufactures to collaborate or partner with international solar technology companies to give them access to the Indian markets through their local manufacturing routes. This can lead to a win-win situation ensuring that world-class technology can flow in India for creating the state-of-the-art manufacturing set-ups – and on the other hand, it will give access to technology companies to have participation in the Indian market. With cost competitiveness and sustained access to the market, our local manufacturers would be able to scale organisations and soon can become world-class suppliers.
Amit Barve, Business Unit- Head of Solar at Panasonic Life Solutions India Pvt Ltd
Expected long-term impact on cost
Addressing the long-term effect of the step on solar energy’s production cost, Barve opined, “Today cost of generating energy through solar photovoltaic is one of the lowest and it would continue to remain irrespective of any alterations happening in the duty structure. In short term, we do not expect any impact on solar energy cost-reducing further. However, as the ecosystem of solar manufacturing starts building in India, we foresee major backward integration happening locally, which can surely have an impact on cost optimisation. Over and above cost, it would be reduced dependence on imports that can help the country in building a solar power nation for the future.”
Although, apparently it is a burden on the industry, but Indian manufacturers are also steadily grooming up. So, more than a real threat, the step is ensuring a better future. It is not a question of profitability of any individual firm, it’s a matter of creating opportunities for our national manufacturers – creating more employment. And the one-year-time-frame is also quite large, so those who are holding apprehension, instead they should focus on reviewing their plans and work for realigning with the new environment.
However, some more preparatory steps are also required from the government’s end. As Barve puts it, “In order to encourage, domestic producers of solar cells and modules on the government projects front, we already have the DCR (Domestic Content Requirement) scheme, which ensures stakeholders use solar modules and cells that are Made in India. However, this is restricted to government projects and is not a criterion for private players. For large-scale adoption of locally made solar components, there are several production-linked incentives in place that are getting enormous commitments from large corporates in India – who are bidding for these schemes and winning large capacities of allocation in solar manufacturing. Therefore, the proposed imposition of BCD is beyond some of the key initiatives, which are already implemented in India. Going forward, further to strengthen local manufacturing initiatives, we can introduce incentives related to R&D in advanced solar technologies, where there is good scope of improvement. With an aim to focus on localisation for production through ‘Atmanirbhar Bharat,’ we equally need to focus on capabilities as well as robust infrastructure for strong Research & Development to expand and elevate this initiative.”
By P. K. Chatterjee (P. K.)