Safeguard Duty: Boon or Bane for India’s Solar Mission ? – Sunil Dayal, Business Head, Benara Solar
Indian solar industry stands at a crossroad where the indigenous solar cell manufacturing capacity is just 3.2 GW, whilst aiming to achieve a generation of 100 GW of solar power by 2022. Since there is no local manufacturing of the key input for the cells i.e. solar wafers and polysilicon, most of these pre-requisites are imported from China and Malaysia.
Thus the potential of the domestic sector is not being fully exploited primarily because neither the price nor the technology of solar equipment produced in the country is as competitive as compared to that of overseas manufacturers. Therefore the need arose to bring a parity in prices of the indigenously produced technology with the foreign manufacturers to end the financial woes of the domestic manufacturer.
The ad valorem safeguard duty imposed by the Directorate General of Safeguards, for two years on solar PV cells is directed to make the Indian manufacturers more competitive by enabling them to recover their cost and earn a reasonable return. Market sales numbers suggest that cheaply available and technically superior imported photovoltaic technology has severely impacted the obsolete and costly Indian technology.
Having said that experts have argued whether this in itself is a reason to safeguard the interest of the domestic manufacturers. This is a time to ponder over as to why the indigenous manufacturers have failed to compete with their overseas counterparts and why the input costs are higher. India’s expansion of manufacturing capacity has been sluggish due to higher development cost and hence it is hard for current capacity to catch up with the downstream demand.
Another pertinent question at this time is whether the struggles of the Indian manufacturers could have been overcome by restructuring our ‘Make in India’ policy or was the creation of trade barriers to safeguard the interest of the indigenous manufacturers really the need of the hour. The private solar photovoltaic market in India viz. the decentralised market as well as the Open Access mostly thrives on imported module technology as the same is not only affordable but also technologically advanced.
The two year period of the recommended ad valorem duty is very short, discouraging any investment in setting up new solar manufacturing capacity. Moreover for solar project, the duty will impact tariffs to the tune of 10% posing an immediate threat to viability of projects under execution. An ad valorem safeguard duty imposition would affect the prices of the RESCO (Renewable Energy Services Company) market.
Several industry leaders have predicted that the payback periods, tariffs and project IRR (Internal Rate of Return) of the Indian RESCO market shall be noticeably impacted. Analyst have forecasted that PV demand shall fall 30% in fiscal year 2018 in India , while cost pressures will mount for EPCs(Engineering, Procurement & Construction) and Project Developers. However, at the same time the only silver lining in the clouds is that such concerns may be mitigated as volumes hit the market.
Deployment of solar power has the potential to reduce global warming, carbon footprint and poverty. The view of the Directorate General of Trade Remedies (DGTR) is that the imposition of safeguard duty has been implemented to safeguard the public interest because it will prevent complete erosion of manufacturing base of solar industry in India which is upcoming and holds promise for a stronger manufacturing base in the country in future.
The challenge is to prevent undue escalation of solar power cost and tariff to the final consumer. We hope that with the introduction of this policy the deployment of 100 GW of solar power in India by 2022 stays on track undeterred. The focal point of public interest should also be addressed with necessary corrections to the policy because despite safeguard tariffs Chinese manufactured modules will still remain competitive while tariffs will rise atleast for a short while from now. The big question is “Has the public interest been well taken care off?”
DISCLAIMER: The views expressed are solely of the author and our media does not necessarily subscribe to it. We shall not be responsible for any damage caused to any person/organisation directly or indirectly.
Sunil Dayal, Business Head, Benara Solar,
Sunil Dayal heads the Strategy and Business function at Benara Solar. He is a renewable energy expert and has advised clients on various areas in the sector. Dayal is an alumnus of Indian Institute of Technology, Delhi and has previously worked for Orange Renewables and Azure Power.