Road towards AtmaNirbhar - The Indian Sun Perspective

With the extension of Safeguard Duty (SGD) for yet another year on imports of Chinese solar power equipments along with the Ministry of New and Renewable Energy’s (MNRE) proposal for the implementation of Basic Custom Duty (BCD) on imports of solar equipments, including solar cells, modules and inverters, the government has cleared its intention to rampup boosting the manufacturing industry – a step towards making India an ‘AtmaNirbhar Bharat’.

September 04, 2020. By Manu Tayal

With the extension of Safeguard Duty (SGD) for yet another year on imports of Chinese solar power equipments along with the Ministry of New and Renewable Energy’s (MNRE) proposal for the implementation of Basic Custom Duty (BCD) on imports of solar equipments, including solar cells, modules and inverters, the government has cleared its intention to ramp up boosting the manufacturing industry – a step towards making India an ‘AtmaNirbhar Bharat’.

The move is significant as India imported about 85 per cent of solar equipments, currently, from China mainly due to cheaper products availability. It is likely that after imposition of SGD and BCD the cost of imported products got increased and would provide boost for domestic manufacturing.

Starting from July 30, 2020, the SGD has been imposed at 14.9 per cent on solar imports for six months till January 28, 2020, however, in the following six months it will be slightly lesser at 14.5 per cent. Besides, MNRE has also proposed BCD, in the range of 15-20 per cent in the first year, which would eventually increase up to 40 per cent. On the flip side, the prices of Chinese solar modules have also increased due to temporary closure of two poly-silicon producing giants GCL Poly and Tongwei on account of production line damage and floods respectively, as per the recent media reports. It can trim project returns to Indian developers.

Despite all the woes, Indian Solar Industry has welcomed the government’s ‘AtmaNirbhar Bharat’ initiative and accepted the challenge in order to make India a self reliant country, and expecting enough support from the government.

In my journey of exploring further about the current state of Indian solar industry towards becoming an ‘AtmaNirbhar’ w.r.t. safeguard duty implementation, proposed Basic Customs Duty, their impact on the industry, expectations of solar industry etc.

A few among the well-known industry veterans representing solar project developers; Engineering, Procurement and Construction (EPC) firms, and manufacturers - P. Vinay Kumar, Founder and CEO, Varp Power; Manoj Gupta, VP-Solar and Waste to Energy Business, Fortum India Pvt Ltd; Sanjeev Aggarwal, Founder and CEO, Amplus Solar; Anil Joshi, Managing Partner, Unicorn India Ventures; K. R. Harinarayan, Founder and CEO, U-Solar Clean Energy; Shri Prakash Rai, Head C&I Business, Amp Energy India; Vikas Jain, Managing Director, Insolation Energy; discussed extensively about their expectations, suggestions and major concerns, which they hope will be taken into consideration by the policy makers in order to provide a combination of realistic as well as futuristic platform for all industry stakeholders. See what they say...

What will be the impact on the Indian solar industry if Basic Customs Duty (BCD) be implemented on imports of solar equipments?

P. Vinay Kumar, Varp Power

With the revised rate of safeguard duty (SGD) which stands at 14.9 per cent for the next 6 months, the current duty structure is practically at the same level as the previous 15 per cent which lapsed on July 29, 2020. The Hon’ble power minister has indicated of imposition of a BCD of 20-25 per cent in Year 1 going upto 40 per cent in year 2. I presume that this BCD will be over and above the SGD. The total duty component will then rise to ~40 per cent in Year 1 and to 55-57 per cent in Year 2. By any standards this is significant and will impact solar tariffs in a big way. Theoretically, it will offer an opportunity and a formidable tariff wall for Indian solar manufacturers to ramp up production capacity and step into the vacuum. But as long as the change in law clause offers a pass through to developers in solar auctions of any increase in duties – no amount of taxation will change the purchase preference for imported modules. This makes it difficult to achieve policy objectives of ‘AtmaNirbhar Bharat’ for promotion of local manufacturing of solar cells and modules.

Sanjeev Aggarwal, Amplus Solar

The immediate impact of any additional duty imposition will be an increase in solar tariffs resulting from the increase in equipment prices, especially modules. It is hoped that in the longer term, import duties will lead to an increase in domestic manufacturing of solar equipment within India. The success, however, will be determined by our ability to invest in newer technologies as well as achieve backward integration while remaining cost-competitive.

Manoj Gupta, Fortum India Pvt Ltd

In addition to safeguard duty if BCD be implemented it will definitely increase the overall cost of the projects and solar tariffs will also go up. Ultimately developer has to bear the risk because if we talk about financing agencies as well, everybody wants assurance of return.

Anil Joshi, Unicorn India Ventures

The BCD on Solar module and Solar cell has been proposed to increase to 20-25 and 10-15 per cent respectively. It seems the objective is to promote domestic production or we can say Make in India or now AtmaNirbhar Bharat. While the move is good to increase the self-reliance but it will certainly increase the project cost and in some case loses to forward order as BCD will add on to the cost. The increase in cost may make some projects unviable due to increase in cost unless and until cost of production is brought at par with import options. In short term it will certainly impact existing projects.

K. R. Harinarayan, U-Solar Clean Energy

There is already a safeguard duty of nearly 15 per cent imposed on solar modules and cells from China. Although, we have the capabilities to meet our solar module capacity within the nation, we still largely import solar cells from China (as there are only 3 - 4 established solar cell manufacturers in India). Imposing further customs duty on cells imported from China is counter-productive as Indian companies use these to develop their product, thereby affecting the cost of the module. Another scenario might arise, that is, in order to maintain cost viability, few Indian cell manufacturers would have the ability to create a monopoly in the market - which as we all know can be unsustainable for long term growth of the market.

Shri Prakash Rai, Amp Energy India

The government is planning to revive the Basic Customs Duty that has been under exemption since March 2005. There is still uncertainty on its imposition and now with the extension of SGD for another year, imposition of another duty would mean higher power cost to the end customer. It is imperative to understand that any trade barrier in terms of duty or tax would be passed ultimately to the end consumer in terms of increase in cost of power. Any increase in power costs results in an increase in operating costs which decreases profitability and increases cost of end products. In such unprecedented times where profit margins are stressed out and everybody is trying to sail through, putting additional burden may not be the best move.

Vikas Jain, Insolation Energy

In general BCD imposition is a welcome move in the context that it is the time to focus on domestic manufacturing, which would help conserve substantial foreign exchange and create at least 3-4 lakh jobs in the sector in the next 2-3 years. This will also help India to achieve its renewable energy targets and help the government to achieve ‘Make in India’ initiative. In addition, the manufacturing would be able to export as well as cater to the domestic market, hence achieving economies of scale.

Will ‘Grandfather clause’ be helpful in saving the industry?

P. Vinay Kumar, Varp Power

The change in law clause and the tariff reset adequately cover the risk of changes in taxation – for the developers. For the manufacturers of solar cells and modules though, it may make eminent sense to have a grandfathering clause for better predictability.

Manoj Gupta, Fortum India Pvt Ltd

If we presume BCD comes in addition to SGD, for example in current scenario where approx 10 GW of projects are under advanced stages of construction and overall around 25 GW of projects have been awarded by government agencies so far. If these duties are going to be paid from the companies own pockets, than the overall impact would be around Rs 10,000 crore to Rs 12,000 crore. If some measures like grandfathering approach or some tariff formula will not be provided by government agencies then the whole money will go directly from the companies’ equity and that much amount of money will be blocked for future development of the market. If companies go for compensation as well, it will take around 2-3 years time in regulatory approvals.

Anil Joshi, Unicorn India Ventures

The purpose of Grandfather clause is to allow reimbursement of custom duty on import of solar equipment. However this may not be applicable if the objective is to promote domestic production. It would be very unlikely that the Grandfather clause would be allowed considering the very purpose of imposing BCD. The problem need to be solved with proper representation and workout PPA considering revised duty structure if imports still continues or cost increase due to higher input cost.

K. R. Harinarayan, U-Solar Clean Energy

The grandfather clause is applicable only for projects that are already in place so it will only be a temporary fix for pre-existing contracts. However, if we are looking at the long term impact on the industry – say till 2-3 years till the cell manufacturing capacity is able to meet the supply, the industry will struggle with meeting the competitive project costs. So there is really no relevance of the grandfather clause when taking into consideration that it is only applicable to very large projects, so it is actually detrimental to upcoming distributed captive solar projects.

Shri Prakash Rai, Amp Energy India

The “grandfather clause” in PPAs is basically an understanding between the developers and the government that their project cost has increased more than their allocated budget at the time of deal closure. This would be compensated via the Discoms. Now there is no clarity from MNRE on addition of such a clause in existing PPAs regarding Basic Customs Duty and there has been a precedent of a ‘grandfather clause’ not being honoured by Discoms which was a similar pass through clause for Safeguard Duty.

Can safeguard duty and BCD will go hand-in-hand? Is this practically feasible as per the current Indian scenario?

P. Vinay Kumar, Varp Power

The Government has been giving all indications that both the duties would be levied. While, it is feasible what the industry craves for is certainty in taxation. Right now things are very fluid.

Manoj Gupta, Fortum India Pvt Ltd

For the impact on upcoming bids and projects, SGD is for one year so it will not be going to impact much, whereas, on BCD right now the percentage and time duration is not clear. However, again the industry will be expecting ‘change in law’ or for some formula which SECI has in last few bids already introduced for compensation in the form of tariff.

Sanjeev Aggarwal, Amplus Solar

Safeguard Duty can only be levied for a limited additional duration. It seems possible for both Safeguard Duty and Basic Customs Duty to be levied in tandem during this period.

Anil Joshi, Unicorn India Ventures

It is very unlikely that both Safeguard Duty and Basic Customs Duty go hand-in-hand.

K. R. Harinarayan, U-Solar Clean Energy

Yes, they can go hand-in-hand and it would actually promote Indian manufacturing. It would be sensible to leave the duty on cells as it is because this provides ample incentives for Indian module manufacturers - or to increase the duty on modules alone and not the cells, if possible (i.e. safeguard duty and basic customs duty on modules and only safeguard duty on cells). As India doesn’t have the capacity to meet the domestic needs for solar cells, therefore, imposing any custom duties on solar cells would be very unwise.

Shri Prakash Rai, Amp Energy India

With the surprise extension of Safeguard Duty @14.9% and 14.5% for the next year till July 2021, notifying an additional duty would create additional burden on the developers. Imposing 2 duties concurrently on one segment of the ecosystem would be unfair and not in line with the government’s ambitious plan of 100 GW of solar by 2022. Having said that, if BCD is imposed anyway and the domestic manufacturing capacity doesn’t come up in line with the demand, then it would lead to either a steep increase in tariffs or under subscription of bids.

Vikas Jain, Insolation Energy

The safeguard duty on imports of solar cells and modules from China and Malaysia was announced in July 2018 to protect domestic cell and module manufacturers. It was set at 25 per cent for the first year, followed by a phased down approach for the second year, with the rate reduced by 5 per cent every six months until it ended on July 2020. However, this failed to achieve the desired results as no big manufacturing units were set up in India. The imports from China still accounts for 80% of the modules used in India.

The proposal on BCD is being considered to prevent unrestricted imports of solar gear from China. Safeguard Duty is actually a short time measure to provide relief to domestic industry and is country specific whereas BCD is for long term and is not country specific. With the BCD and Safeguard Duty in place the domestic manufacturing is expected to take off in a big way.

What do you think policy makers should do to tackle the situation?

P. Vinay Kumar, Varp Power

Simple, Give us certainty in taxation. One year visibility in taxation for a 25 year PPA structure does not go together.

Sanjeev Aggarwal, Amplus Solar

Policy makers need to look at increasing domestic capability in solar and renewable manufacturing while also keeping the final energy tariff viable. Direct incentives and benefits to high quality domestic manufacturers will be helpful in achieving this.

Manoj Gupta, Fortum India Pvt Ltd

In current situation, if government will provide grandfathering approach for upcoming projects as well, it will be helpful for the industry, or if agencies like SECI, NTPC will come up with a formula for compensation like earlier, which will be tackled without going to the regulator or court then it will be a successful formula otherwise it will completely hamper the future growth of the solar industry.

Anil Joshi, Unicorn India Ventures

The objective of policy maker is clear i.e. to promote domestic production and help utilizing existing capacity. Hence it would be important to understand how the cost of production can be reduced at the same time high quality solar equipments are manufactured. The policy maker may want to support on building better research facility enabling production of high yield solar equipment, if India is able to produce high yield equipment then increase in cost can be compensated for better productivity and over a period of time the production optimization can be achieved. In mean time the policy maker may support with better PPA to compensate on increase in cost due to duty or raw material cost to make projects commercially viable.

K. R. Harinarayan, U-Solar Clean Energy

Policy makers should consider that domestic made modules are not able to meet the complete demand of all projects in the country. Few suggestions would be: 1. To phase out the injection of domestic solar equipment so that manufacturers and developers can meet the competitive price as well as the large demand through tenders. 2. Provide incentive to Indian cell manufacturers to increase their production and support their supply of raw material that is not available in India currently. 3. Plan the self-sufficient market over a course of 4-5 years so that the market can make this transition organically without severely affecting the health of the market.

Shri Prakash Rai, Amp Energy India

Policy uncertainties and trade barriers in a growing segment tend to affect the sector adversely. We understand that the intent of the government is to scale up domestic manufacturing and provide a level playing field to the domestic manufacturers but that should not prove detrimental to the other segments in the ecosystem. Instead of imposing trade barriers, the government should focus on reducing the cost of domestic manufacturing of modules and cells with cost subsidies, interest subversion and lower power cost. This will also ensure competitiveness in the global market.

Vikas Jain, Insolation Energy

The Govt has to devise policies keeping in mind the concerns of all the industry stake holders. While imposition of duties are necessary for setting up domestic manufacturing units thus realising the vision of Make in India, on the other hand, it has to support the developers during the transition phase so that the already signed PPA’s sees the light of the day. Overall if we have to realise our vision of 100 GW by 2022 we need to stress on “Make in India” and “Vocal for Local” initiatives.

How far is the road towards ‘AatmaNirbhar Bharat’ for the country’s solar sector?

P. Vinay Kumar, Varp Power

We have started off on the journey. The government is supportive. It is for the industry to take up the Gauntlet and deliver the promise of ‘AatmaNirbhar Bharat’.

Manoj Gupta, Fortum India Pvt Ltd

‘AtmaNirbhar Bharat’ is a good idea no doubt about it and bringing BCD is also fine, the only thing is: 1. on commercial grounds, IPP or developer has to be compensated, 2. Under AtmaNirbhar Bharat when duties like BCD etc comes in, there should be a norm that an IPP or developer has to buy from the Indian market keeping in mind that the Chinese products will not be competitive and enough quality products will be available in the Indian market.

Besides, the government should also look into that: Not only modules India should be capable of making ingots, wafers and cells as well then only in real terms India will become AtmaNirbhar. These products should not only be capable for supporting Indian market but also competitive enough both in terms of quality and price against Chinese products in overseas markets.

I feel that big industrialists should come forward like Reliance, Adani, Waaree, Vikram etc has already announced their contribution. Others should also come forward for manufacturing components like cells, wafers, ingots etc and government has to support them like 5% interest subsidy plan etc.

Anil Joshi, Unicorn India Ventures

Currently India has sufficient capacity to meet the domestic demand, however almost entire demand is met through imports mainly due to cost factor. Considering the current capacity the country is in position to be AatmaNirbhar as far as Solar equipment is considered and is not a major concern. Hence meeting demand with domestic production is not an issue just need to work on providing quality product and reasonable price. In fact country is in a position to start exporting, just need to spend on development, which I am sure will be done over a period of time.

K. R. Harinarayan, U-Solar Clean Energy

With respect to solar module manufacturing India still lacks the raw material that is used to assemble the panels - namely cells, wafers and ingots. Currently there is no plan to make wafers and ingots in India, so that is ruled out. However, as far as cell manufacturing is concerned India is still about 4 years away from meeting the supply from the Indian market at the industry quality standard. As far as Inverters go, even there a huge gap exists as manufacturers are mostly involved in assembly as there are no indigenous electronic makers in India. Having said this, there seems to be a lot of initiative being taken by the Government which shows movement in the right direction. So we are certain that this is possible while the transition would have to be made smooth for all players in the Solar Industry.

Shri Prakash Rai, Amp Energy India

The government’s idea of an “AtmaNirbhar Bharat” is a step in the right direction but the government has to ensure that the transition from a largely import driven market to a self-sustained marketplace has to be carefully phased out. Perseverance in policies and swift implementation is key to becoming AtmaNirbhar.

Vikas Jain, Insolation Energy

As per the Ministry estimates the current capacity of the domestic solar cells and modules manufacturing meets only half of the country’s demand. Presently the solar cell manufacturing capacity is 2.5 GW and another 5 GW is under construction. A further 3 GW has been approved. The solar modules manufacturing capacity is comparatively better at 8 GW. There is a clear need for restricting cheap imports and boosting domestic manufacturing. Apart from cells and modules the government should support setting up of silicon ingots and wafers manufacturing units hence achieving vertical integration. The total self reliance can be achieved only by having complete control over the entire value chain. We also need to invest in the research and development of new technologies so as to come with new highly efficient innovative products.

- Manu Tayal, Associate Editor, Energetica India

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