Power Update

Proposed safeguard duty proving to be a big uncertainty for solar sector: ICRA

The Directorate General of Safeguards has recommended provisional safeguard duty of 70 per cent on solar cells and panels in January 2018 and the final decision is still pending. Subsequently, Madras High Court had put a temporary stay on implementation of safeguard duty and the timelines for final decision are also not clear. Also, the fact that recently, the industry association of solar cell manufacturers has withdrawn their earlier petition filed for anti-dumping duty in June 2017 and now wishes to file a fresh petition in April 2018 based on investigation period between April 2016 till December 2017 (based on industry sources), is adding to uncertainty.

Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, says, “As a result, uncertainty prevails both over 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. ”

With expected decline in PV module price level, long term debt availability at cost competitive rate and aggressive bidding by IPPs, weighted average solar bid tariff during CY 2017 declined sharply to Rs. 3/unit from Rs.5/unit in CY 2016. If safeguard duty were to be considered at 30 per cent on illustrative basis, the impact on solar bid tariff of Rs. 3/unit is estimated to be significant i.e. at about 54 paisa per unit assuming that solar PV module at prevailing price level comprises of about 60 per cent of project cost.

“This in turn is reflective of 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 adds.

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