The Safeguard Duty On Solar Imports To India: A boon Or A bane?


India’s solar energy sector has experienced rapid growth over the past months. Today, it stares at a new safeguard duty on the import of solar panels, which could increase power tariffs as well as the cost of ongoing solar projects.

By Baishakhi Dutta

The Ministry of Finance has imposed a safeguard duty on the solar panels imported from China and Malaysia, and has notified the Directorate General of Trade Remedies (DGTR) about this. The duty came into effect on July 30, 2018.

The step was taken following a petition filed by domestic solar panel makers in December 2017, who were seeking protection from the rising imports from these conutries. Consequently, a steep 70 per cent duty on imports was recommended by the Directorate General of Safeguards under the finance ministry in January 2018. In July 2018, the directorate brought the proposed tariff rate down to 25 per cent. Even this was challenged by a few solar power developers in the Orissa high court, which passed an order against any such duty being imposed till August 20, 2018.


The duty recommended by the Directorate General of Trade Remedies will apply for two years on imports from China and Malaysia. While this duty will be 25 per cent in the first year, it will be reduced to 20 per cent for the first six months in the second year, and to 15 per cent for the following six months.

India imports about 85-90 per cent of its solar panels from China and Malaysia. The new import duties have been introduced on the grounds that such imports were causing ‘serious injury’ to domestic solar panel manufacturers.

However, based on the analyses of submissions by interested parties, the DGTR has recommended that no duty should be levied on imports from other developing countries.

The move has been opposed by several solar power developers on the grounds that the higher tariffs on solar modules will leave them with no option but to pass on the extra charge to discoms and, ultimately, the consumers. This in turn might slow down India’s ambitious solar programme, which aims to have 100GW of solar capacity by 2022. They state that local solar panel manufacturers do not have sufficient capacity to meet their needs.

Solar power tariffs are currently on par with thermal power tariffs. The safeguard duty is expected to raise the solar power tariff by at least 50 paise, the developers state. According to analytics, research and ratings firm, CRISIL, the safeguard duty is both a boon and a bane for the solar value chain. CRISIL has stated that, on the one hand, this duty provides an opportunity for the domestic solar panel industry to flourish. But the duty will also raise the capital costs for solar projects that are dependent on imported panels by 15-20 per cent. So the safeguard duty may lead to higher domestic solar power tariffs, as a bulk of the projects are already under implementation.

CRISIL’s analysis shows that the minimum bid tariffs for solar power projects based on imported modules would rise to ₹ 2.9 – ₹ 3.2 per unit in the first year, when a duty of 25 per cent is imposed, to maintain the current rate of returns. This is about ₹ 0.50 higher compared to the ₹ 2.44 – ₹ 2.80 per unit bid tariffs seen over the past few quarters. Duty rates applicable in the second year at 20 per cent and 15 per cent will require slightly lower tariffs of ₹ 2.8 – ₹ 3.1 per unit for the same levels of equity IRR (internal rate of return).

Kushant Uppal, the founder and MD of Intelizon, believes that the implementation of the safeguard duty will impact the economics of solar installations in India. “When the cost goes up suddenly, and this aspect is not included in the contract terms, then the power suppliers will get impacted,” Uppal explains.

100GW of solar power by 2022: Is it viable?
India has around half a dozen makers of solar cells and modules/panels, with a total capacity of around 3GW. This is hardly enough to meet the country’s burgeoning demand. Of the ambitious aim of installing 100GW of solar power in India by 2022, the government has achieved the capacity of only around 22GW till now.

Uppal believes that this move to raise import duties on solar modules will undoubtedly impact the target. “The move has not impacted the solar manufacturing scenario in India as such but because of the consequent uncertainty, many ongoing projects have slowed down, and new projects may get delayed.”

However, Vivek Vashista, senior engineer, service sales, ABB India Limited, is hopeful that domestic solar manufacturing will grow in the next two to three years. “There will be a great boom in the domestic as well as commercial solar market since customers are getting more and more conscious about the need for energy saving,” says Vashista.

What role such duties actually play in achieving the goal of bolstering domestic manufacturing is yet to be fully understood. The new safeguard duty has put locally-made panels on par with imported ones in terms of cost. However, the domestic sector has a long way to go and has much more to do, before it can cater to the demands of the local solar sector.

This safeguard duty is an artificial phenomenon, which is serving a limited interest

Excerpts from an interview with Maxson Lewis, Managing Director, Magenta Power

Maxson Lewis, managing director, Magenta Power

EB: Do brief us about the current solar manufacturing scenario in India.
In India, most of the manufacturers import the wafers from six to eight international companies. India has largely been an assembly market rather than one in which manufacturing is done from scratch. True manufacturing is when you manufacture the wafer, apart from the panels. There are only two companies in India that do end-to-end manufacturing. At present most of the panels are directly imported from China.
There are different levels of manufacturing in India. One comprises small setups that do only assembling. Another level is the organised sector, where there is some sophisticated manufacturing and testing going on. The lowest level mainly puts together the small panels used for irrigation and other such purposes, while the top level of manufacturers are into mass production, using international machinery for production and testing.

EB: Will it be possible to achieve a capacity of 100GW by 2022?
Probably, yes. I do not see the target being a major issue. Even the safeguard duty is not an obstacle in achieving the target. The bigger issue, one that is hidden most of the time, is the transmission system. Achieving the target is largely going to depend on the evacuation or transmission capacities that we have in India, which are a lot less than the target that has been set. This means that I will be able to put up a solar plant but won’t be able to transmit the power; and you can’t generate power and store it. The moment it is generated it has to be evacuated and sent to the grid. Since the evacuation lines do not exist as yet, that can become a major obstacle.

Overall, I believe there will be a lot of consolidation in the solar market. Right now the multi-megawatt projects are coming up, with developers hedging their bets, which means the power is being sourced at very low prices. In a year or two, when the players realise this is not really sustainable, there will be a lot of consolidation and that could delay the achievement of the target.

EB: Will the increased price of imported solar panels be passed down to the end consumers?
I do not believe that as yet. In solar, the tariff cost doesn’t get directly transmitted to the end consumers. Solar power is purchased for say around ₹ 2. But the consumer is actually paying a lot more—about ₹ 4-6 and even ₹ 10 in places like Maharashtra. So there is no direct correlation between the cost of generating power and the price it is sold for. The safeguard duty will directly impact the small residential rooftop customers, as they buy the panels and set them up at home.

EB: Will this affect the solar rooftop market?
I do not see it bringing the market down since people are going to think about it. The existing cycle is going to get longer. The business case for solar (keeping in mind the price point) remains positive. This means that if someone is investing ` 100 in solar, the payback period will be less than four years today. The safeguard duty may impact this period, but it will not change the demand cycle.

EB: What, according to you, is being done to boost domestic manufacturing?
The government is supporting manufacturing through various general policies and processes, but is not providing any additional benefits to the solar industry. The growth in the industry is purely due to the demand for solar power. The government is driving up demand; however, it is not increasing the facilities for production. So the industry is growing based on the demand, and not because the government is helping it.

EB: Will the safeguard duty hurt or help the ‘Make in India’ initiative?
I do not believe in the safeguard duty. I am against subsidies as well. The reason is that such duties create an imbalance in the market, which can become a deterrent for some people. The safeguard duty is trying to help the ‘Make in India’ campaign, but only in the short term. If we ‘Make in India’ only for the local market, then this imposition of safeguard duty is helpful. But when the protected solar panel manufacturers start competing at the international level, they will find themselves outsmarted by the Chinese manufacturers, who have already invested in improving their processes and are able to make the panels at a lower cost.

Therefore, this safeguard duty is an artificial phenomenon, which is serving a limited interest. Instead of the safeguard duty, I would advise investments in R&D, etc, that are sponsored by the government. Currently, there is no institute in the country where you can carry out R&D activities for the solar panel manufacturing sector. All the materials required for manufacturing are being sourced from China. So I would have preferred greater support for the solar initiative in India rather than settling for an artificial price point.



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