Posted on February 15, 2022 

With barely six weeks to go before the the Basic Customs Duties (BCD) on solar module imports(40%) and solar cells (25%) kick in, the National Solar Energy Federation of India (NSEFI) has written to the MNRE to make a case for grandfathering of these projects. By grandfathering, these projects would, in effect be exempt from the new duty structure for their requirements, with perhaps a lower duty structure in lieu.

solar panels in India's Rajasthan state-Image by Yinson Holdings Berhad.jpg

Solar panels in India's Rajasthan state-Image by Yinson Holdings Berhad

In a letter addressed to Power and MNRE minister R.K. Singh, the developer heavy NSEFI has made its case on the basis of the disruptions caused by the covid pandemic, and the risk of discoms finding enhanced tariffs high enough to make many of the pre-March 2021 projects risk scrapping. Readers will recall that in an unusual move the ministry had informed about its its intentions to impose a BCD well in tie, to enable developers to plan ahead. In fact, it had been specified that projects being bid for after March 2021 will do so under the assumption of the ew duty structure that would kick in from April this year. That is one reason bid prices crept up a little from the lows of Rs 2 that were reached before the March 09, 2021 deadline.

With many of these projects missing their SCOD, and now set to be completed only post March 2022, the NSEFI reckons that even if the change in law conditions are accepted, the incremental cost under change in law compensation will burden the end consumer with at least Rs. 0.30 and reaching to Rs. 0.50 per KWh with use of imported cells and modules for these specific projects. The higher costs will also require fresh fund raising at a higher cost, adding to developer costs further.

So far, the ministry has been mum on the issue of grandfathering, even as the idea has been in the works for long. The other option, of a slight extension for the BCD start date is also off the table now. That leaves the developer’s behind these 15 GW projects, comprising a veritable who’s who of the industry, to find a much more persuasive argument for the ministry to make a move. The fact is that between the spreading reach of the ALMM regime, exports from leading domestic manufacturers and capacities that will start procurement, domestic capacity is clearly inadequate to meet demand till 2022-24 at least. Especially if capacity is added at the scale India has committed.

Caught between large developers and domestic manufacturers, the government clearly needs to find a balancing act that will please all. It does seem to be alive to the situation, as its recent push to simplify solar rooftop installation as well as the push for PMKUSUM, both schemes that are tied to domestic procurement, show. What will finally decide its response is probably the pricing strategy domestic manufacturers follow, once the BCD regime kicks in. Quick, sharp price increases with the added protection will probably strengthen the case of the developers, although domestic manufacturers trying to manage the increase in input costs will make their own case too.

In either case, higher eventual prices to discoms and at consumer level have always been discomfiting for the government, and that might yet decide this battle. Expect a certain amount of grandfathering, for specific projects linked to key conditions. Perhaps even by paying the safeguard duty rate of 14.5% that was applicable while these projects were bid out.