The solar industry had calculated that this duty imposition would lead to an escalation of 50-60 paise in the final solar tariff
The solar industry may be about to face what imported coal-based power projects saw some years back — an increase in production cost due to changes in law and the imposition of new tariffs. Due to a safegaurds duty recently announced by the government, close to 7,000 MW of under-construction and recently bid solar projects will see their cost go up and would have to revise their tariff accordingly.
The Indian government announced the imposition of safeguards duty on imported solar cells and modules for two years – 25 per cent for 12 months from now, 20 per cent for six months thereafter and 15 per cent for the balance six-month period. The duty would specifically impact the solar panels coming from China and more than 85 per cent of India’s solar capacity is built on Chinese panels.
The solar industry had calculated that this duty imposition would lead to an escalation of 50-60 paise in the final solar tariff. This, the project developers said, would lead to tariff revision for several recently bid and under-construction projects. The safeguard duty is a pass-through cost i.e. the project developer can pass it on their final power sale price.
ACME Solar for instance, which quoted Rs 2.44 per unit for 600MW capacity in Rajasthan this month is expecting an increase in per unit cost by 57 paise after duty imposition. The company has asked the ministry of new and renewable energy and SECI – the nodal agency for holding solar project auctions – to file for tariff revision on behalf of project developers and also convince states to purchase at new high tariff.
“We don’t know if the power distribution companies would purchase solar power Rs 3/unit. There is a long drawn process to get regulatory nod for tariff revision. No bank gives money till the tariff is finalised. The cancellation of several power purchase agreements (PPAs) by states is inevitable,” said Shashi Shekhar, vice chairman, ACME Group.
Over the years, coal power projects have seen massive fluctuations in price and availability of coal. This led to high litigation cost and increase in the power rate, landing several projects in debt trap. Industry executives fear that the same could happen in the solar sector if there is no stability on tariff and clarity on regulations.
Power project developers are expecting close to 7,000 MW of projects to land in soup owing to change in tariff, regulatory process and likely cancellation of PPAs by states who would find increased tariff as costly. The duty imposition would also increase cost of solar projects which would be bid hereafter. India aims to add 100 GW of solar power capacity by 2020 which entails adding close to 25GW for three years. India’s current solar power capacity stands at 20 GW of the total renewable capacity of 70 GW.
Shekhar further added that during 2016-17, states became comfortable in purchasing solar power as tariff fell below Rs 2.5 per unit. “It helped them replace the variable tariff of costly thermal power which they had to pay. But with solar also breaching Rs 3 power unit, there is no incentive.”
CRISIL observed that an increase in capital costs would make solar power less competitive as compared to wind power, which averaged Rs 2.80 per unit in fiscal 2018 and has also seen tariffs as low as Rs 2.43 per unit.
“However, overall capacity additions may not be materially impacted as cost competitiveness of solar with other sources, barring wind, remains high, though there could be some near-term delays in project implementation,” said Rahul Prithiani, Director, CRISIL Research, in a latest report.
Source: business-standard
