Uncertainty over duties impacting tendering for solar projects: ICRA

The prevailing uncertainty over the quantum and timelines related to imposition of safeguards duty and anti-dumping duty on imported solar cells and modules will impact tendering activity in the solar power sector, research and rating agency ICRA said.

The Directorate General of Safeguards (DGS) had in January 2018 recommended provisional safeguard duty of 70 percent on solar cells and panels which is still pending due to a temporary stay by Madras High Court.

Also, after withdrawing its earlier petition filed for anti-dumping duty in June 2017, the industry association of solar cell manufacturers now wishes to file a fresh petition in April 2018 based on investigation period between April 2016 till December 2017. That is adding to uncertainty.

"As a result, uncertainty prevails over both timelines and the quantum of safeguard duty proposed. There is also no clarity on pass-through of such duty under “change in law” provision. In this context, tendering activity for solar projects would continue to be impacted in our view, as also seen in the postponement of solar project bids in Maharashtra and Karnataka recently, and overall subdued trend of solar project awards since June 2017,” said Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings.

With the expected decline in PV module price level, long-term debt availability at cost competitive rate and aggressive bidding by independent power producer (IPPs), weighted average solar bid tariff during 2017 declined sharply to Rs 3 per unit from Rs 5 per unit in 2016. ICRA said if safeguard duty were to be considered at 30 per cent on illustrative basis, the impact on solar bid tariff of Rs 3 per unit is estimated to be significant, at around 54 paisa per unit, assuming solar PV modules at prevailing price level comprise around 60 per cent of the project cost.

“This, in turn, is reflective of the trend that solar tariff bids would see an upward movement as and when clarity emerges on safeguard duty front. Also, the prospective applicability of such duty remains critical for the projects which have been recently awarded in bidding route,” Majumdar said.

For domestic solar cell and module manufacturers, imposition of 7.5 per cent import duty on solar PV modules -- under the classification of electric motors & generators -- has been positive since October 2017. Safeguard duty would also be positive if notified for Original Equipment Manufacturers (OEMs) given that it would lead to an improvement in their competitiveness against import competition.

Source- ET Energyworld