70% duty may cripple 3-gw solar projects worth Rs 12K crore: Crisil

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The recent government decision to slap a hefty 70 percent provisional safeguard duty on imported solar panels and modules from China and Malaysia will put 3,000-MW of solar projects under implementation, worth Rs 12,000 crore, at risk, warns a report.

In a report, rating agency Crisil today noted that in 2017, 4,000-MW of solar projects were auctioned at low tariffs, so any rise in equipment cost after the 70 percent safeguard duty would crimp the cushion that developers have to service debt.

“Assuming 1,000 MW of excess inventory to be in transit, about 3,000-MW (3-gw) of capacities worth Rs 12,000 crore, would be yet to tie up their module requirements, which will be at risk due to the imposition of the safeguard duty,” the agency warned.

Subodh Rai, a senior director at Crisil, said, “the 70 percent safeguard duty proposed will inflate project costs by 25 percent and crank up viable tariff to Rs 3.75 per unit from around Rs 3 estimated earlier, making solar power less attractive to discoms. This tariff would also be more than the average power purchase cost of 10 of 14 discoms in FY17”.

 

Modules account for 55 percent of the cost of a solar project, and as much as 80 percent of them are imported from China and Malaysia.

“With a few alternatives available, the proposed safeguard duty would drive a sharp rise in the landed price of modules,” the agency noted.

Crisil said projects, wherein equipment are imported, have a ‘change in law’ clause under which developers can seek relief but this is yet to be tested and will likely face legal and regulatory hurdles.

“Government has been nurturing the renewable energy sector by taking conducive steps. Therefore, a timely final order resolving the duty uncertainty is necessary to balance the targets of renewable energy and domestic manufacturing industry, while preserving the feasibility of projects under development,” he said.

The finance ministry, through its standing board of safeguards, will take a final decision on the duty either on the provisional or the final recommendations of the Directorate General of Safeguards.

“Prolonged uncertainty on the quantum and timing of implementation of the safeguard duty will reduce developer interest in future bids and also impact investor confidence in terms of certainty of returns,” Manish Gupta, a director at the agency said.

 

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