Loading...

Customs duty finally on the anvil


26 June 2020 | BRIDGE TO INDIA

Customs duty finally on the anvil

After a year of deliberation, MNRE has announced that basic customs duty (BCD) shall be levied on all cell and module imports from 1 August 2020 onwards. The proposal, pending approval from The Ministry of Commerce and Ministry of Finance, mentions 15% and 20% duty rates on cell and modules in the first year, going up to 30% and 40% respectively from second year onwards. MNRE has indicated that the duties are expected to stay for a long time with no set date for expiry.

  • Adani, Tata Power, Vikram and Waaree would be the main beneficiaries but most of them would be keen to enter into JVs with Chinese companies for financing, technology and procurement assistance;
  • A comprehensive and well-planned manufacturing policy is needed alongside BCD for shoring up domestic manufacturing competitiveness;
  • BCD effect would take about two years to trigger as developers would continue to import from China because of cheaper prices and ‘change in law’ protection;

The government has been deliberating on customs duty for over a year now. COVID-19 and border dispute with China have hardened the government stance on both timing and level of duties. Most likely, the duty shall also be applicable on various components including glass, frames and chemicals but polysilicon and wafers would be exempted. There is no clarity as yet if the duties would be applicable on inverters also.

Figure: Solar duty structure

Figure: BRIDGE TO INDIA research

Will BCD actually lead to manufacturing investment in India?
Yes, but only to a limited extent. The proposed duty levels are sufficient to tide over the cost disadvantage of domestic manufacturing. We expect Adani, Tata Power, Vikram and Waaree to be the main beneficiaries and most obvious candidates for expansion. Most of them are likely to look for JV opportunities with Chinese companies for financing, technology and procurement assistance. US-based First Solar is a potential candidate. There may also be 1-2 dark sheep, possibly leading industrial houses in India. Reliance, Jindal and Mahindra have shown intent in the past to enter solar manufacturing business. But we do not see any material interest from the Chinese, for obvious reasons.

Will India become a solar manufacturing superpower?
Sadly, no. BCD alone is not going to cut it. The Chinese players dominate solar manufacturing through substantial investments in scale, R&D and value chain control. Indian companies have mammoth capability gaps and would continue to rely heavily on Chinese suppliers. Imports meet 40-60% of domestic requirement across the capital goods sector because of shallow technology capability, fragmented scale and high cost structure. Moreover, with the economy weakening and banks not keen to lend, financing would be a major hurdle.

India’s notoriously fickle policy regime also does not help. A comprehensive and well-planned manufacturing policy is essential for shoring up domestic manufacturing competitiveness.

Will we gain complete energy security?
For the reasons discussed above, not in the next 5-7 years at the very least.

What will be the impact on tariffs? Will DISCOMs still buy solar power?
A 40% duty would increase tariffs by INR 0.50-0.55/ kWh. Solar would still remain far cheaper than conventional power but demand over 1-2 years would be subdued partly because of excess supply situation.

What will be the impact on current project pipeline?
Setting aside 12 GW capacity allocated in the manufacturing-linked tender, India has a solar project pipeline of 27.2 GW. Fundamentally, there should be no adverse impact on the pipeline projects as most tenders offer an all-encompassing ‘change in law’ protection. The developers would continue to import from China because of cheaper prices. But the problem would be funding incremental capital cost as lenders would not be keen to do so. We estimate equity requirement of projects to almost double posing a major (but temporary) headache for the developers.

About 2.1 GW of the pipeline is earmarked for domestic modules. Netting that off and assuming a typical DC:AC ratio of 1.4x leaves us with 35 GW market for imported modules over the next 2-3 years. Assurance of this business makes the Chinese companies reluctant to invest in India in the short-term.

What about rooftop solar and OA markets?
These markets are already bearing 15% safeguard duty burden. The impact of 5% additional duty would be negligible. Implementation of the duty structure along planned lines should lead to a temporary burst in activity in 2020-21 as demand comes forward in anticipation of higher duty from August 2021 onwards. Longer-term impact may not be material either because of the falling cost trajectory.


Recent reports

India Solar Compass | Q1 2024

India Solar Compass | Q1 2024

This report provides a detailed update of all key sector developments and trends in the quarter – capacity addition, leading players, tenders and policy announcements, equipment prices, financial deals and other market developments. It also provides market outlook for the next two quarters.

India PV Module Intelligence Brief | Q1 2024

India PV Module Intelligence Brief | Q1 2024

This report encapsulates quarterly trends in module demand and supply, import and domestic production volumes, supplier market share, break-up by technology and rating, global market scenario, pricing across the value chain, key policy developments and market outlook.

India Corporate Renewable Brief | Q1 2024

India Corporate Renewable Brief | Q1 2024

This report provides an update on key trends and developments in the corporate renewable market including capacity addition, key players, policy & regulatory issuance, financing, PPA tariffs and other market trends.

Corporate renewable market -alternative procurement options

Corporate renewable market -alternative procurement options

Corporate consumers seeking to increase share of renewable power in their consumption mix have the option of using multiple short-term procurement routes like green power exchange, renewable energy certificates (RECs), I-RECs and green tariffs.

India Solar Rooftop Map | December 2023

India Solar Rooftop Map | December 2023

India Solar Rooftop Map is an info-graphic report providing a snapshot of rooftop solar market in India – capacity addition across states and consumer segments, market share of leading players and other key trends. Total rooftop solar capacity is estimated to have reached 14,484 MW by end of 2023. Total new installations in 2023 are estimated at 2,856 MW, up only 8% over previous year.

India Solar Map | December 2023

India Solar Map | December 2023

India Solar Map 2023 is an info-graphic report covering growth of utility scale solar sector – national and state-wise commissioned and pipeline capacity, leading market players and portfolio details of top 16 project developers. Capacity addition in 2023 fell 51% YOY to 5,924 MW taking total utility scale solar capacity to 59,840 MW. Total project pipeline stands at a record 74,161 MW.

To top