For a project bid in March, import of panels would take place between June and July 2021
Sector analysts expect basic Customs duty to increase the cost of solar power by at least 40 paisa.
The Centre’s decision to impose basic Customs duty on imported solar cells and modules from April 2022 has put developers of solar power projects in a spot. Most of them are now lining up for tenders in order to import and start construction before the duty kicks in next year.
The latest tender by Gujarat Urja Vikas Nigam (GUVNL) for constructing 500 Mw of solar power project generated good response with leading players participating in it. This included state-owned NTPC and Coal India. The bidding closed on Monday at a tariff of Rs 2.20 per unit. This is the first auction after the ministry of new and renewable energy (MNRE) issued a notice asking developers to take basic Customs duty into account while bidding after March 9, 2021.
For a project bid in March, import of panels would take place between June and July 2021. In the current scenario, there is a safeguard duty levied on solar imports coming from China and Malaysia that expires in July this year.
“Developers will try to import the maximum number of modules before March 31, 2022. For tenders happening now, there is a likelihood that we will get the benefit of avoiding the basic Customs duty. But this is a small window. Any tender after July will not be able to avoid it. So, people are planning to import their complete or partial demand,” said a senior executive of a leading solar project company.
He, however, pointed out that tariff gaps will remain among states. “Gujarat would always receive aggressive tariffs due to its steady payment and cost of land, among others. But those states that lack such discipline will fail to get attractive tariffs,” said the executive.
Sector analysts expect basic Customs duty to increase the cost of solar power by at least 40 paisa. The average solar tariff in the country is around Rs 2.5 per unit now and it is likely to cross the Rs 3-mark after the duty is levied. Tariff for a solar tender in Gujarat was Rs 1.99 per unit last year.
“The 20 paisa increase in tariff is misleading as there is no relief from basic Customs duty in this tender. These tariffs are extremely aggressive but we believe that most developers would try to import modules in advance before the duty kicks in. Overall investment sentiment is bullish,” said Vinay Rustogi, managing director (MD), Bridge to India.
The cost of solar modules imported to India have increased by 22 per cent since June last year. Sector experts said if the panel costs increase, there could be an impact of 50-60 paisa on solar tariff. India Ratings, in its latest report, said basic Customs duty would lead to an increase in solar tariffs on account of a rise in the overall project cost. This would reduce the overall attractiveness of solar projects to offtakers and finally end-consumers.
Asmita Pant, senior analyst, India Ratings, said, “The increase in tariffs will raise power purchase costs for solar off takers by Rs 9 billion annually, considering that around 10 Gw of solar capacity will come on stream in the next 12 months. This amount will keep on increasing exponentially with commissioning of new projects.”