Falling tariffs were a problem before — simply because the successively lower bids by service providers made state power distribution companies
reluctant to sign firm power purchase agreements (PPAs) with solar power generators that would lock them into tariffs at a certain price. Now the safeguard duty has clouded the issue even more. The solar industry had calculated that this duty imposition would lead to an increase of 50-60 paisa in the final solar tariff. This, the project developers said would lead to tariff revision for several recently bid and under-construction projects. The safeguard duty is a pass-through cost (meaning the project developer can pass it on their final power sale price).
ACME Solar, for instance, which quoted Rs 2.44 per unit for 600 Mw capacity in Rajasthan, is expecting an increase in per unit cost by 57 paisa. The company has asked the ministry of new and renewable energy and Solar Energy Corporation of India (SECI) — the nodal agency for holding solar project auctions — to file for tariff revision on behalf of project developers and convince states to purchase solar power at the new, higher tariff.
“We don’t know if the power distribution companies
will buy solar power at Rs 3 a unit. There is a long-drawn process to get regulatory nod for tariff revision. No bank gives money till the tariff is finalised. The cancellation of several power purchase agreements (PPAs) by states is inevitable,” Shashi Shekhar, vice-chairman, ACME Group told this paper earlier.
Power project developers are expecting close to 7,000 Mw of projects to face problems because of tariff changes, the complex regulatory process and likely cancellation of PPAs by cash-strapped state discoms. The duty imposition would also increase the cost of tariff bids for future solar projects.
The industry expects that those companies
with projects that were bid in recent past and are under construction to ask the electricity regulator to pass-through the increased cost on the final power tariff. This “change in law” petition is likely to take its own time, says Aditya K Singh, counsel, Bharucha and Partners, a Mumbai-based law firm, because the actual impact of the safeguard duty on the cost of building the power plant is yet to be assessed.
“Since developers would cite ‘change in law’ to get an extension in the commissioning date of their projects tagging it under force majeure, it can be safely assumed that the imposition of safeguard duty may have impact on our target of 100 Gw of solar power by 2022,” he added.
Another worry is the state-owned financially ailing discoms. In the past five years, states became aggressive for solar as the tariff tumbled and made solar power affordable. Now, with tariff inching closer to average tariff of coal-based power, states could be wary of signing PPAs for solar power yet again.
“The central government should ideally announce the tariff escalation in different states with respect to the duty and also allow an extension in commissioning timelines,” said Vineet Mittal, chairman, Avaada Group. Since the developer has to invest in the safeguard duty upfront, he explained, they expect an immediate solution to cost escalation. “Litigation is bound to increase with project developers demanding that costs be passed through and extended commissioning deadlines, but that is a time taking effort through regulators and courts,” he pointed out.
The troubles don’t end there. Project developers wonder where to source their panels from. More than 85 per cent of India’s solar capacity is built from Chinese panels, which now will attract safeguard duty. Although there is a provisional stay on the duty, the cost would have to be paid later if the developers lose the legal case against the proposed safeguard duty imposition.
Even as the price of imported panels rises, there is no similar domestic capacity to meet the demand. The current installed capacity of the Indian solar cell manufacturing is 1,386 Mw and that of modules about 2,500 Mw. Less than 20 per cent of domestic manufacturing capacity is operational due to low demand. India’s current solar power installed capacity is 20,000 Mw. The domestic industry claims that India has potential of 11,000 Mw of manufacturing capacity.
“Given a conducive environment, Indian manufactures are capable of innovation, product efficiency and quality. The safeguard duty is bound to ensure an even playing field for both domestic and imported products. We believe it will help achieve the required energy security in the country, and motivate players to become active partners, as India transitions towards becoming a renewable energy reliant country,” said Sunil Rathi, director, Waaree Energies, a Mumbai-based solar panel manufacturer with an installed capacity of 1.5Gw.
Meanwhile, the Centre’s two flagship schemes to promote solar manufacturing — one through subsidy and the other through bidding — are moving in the slow lane.
The Chinese Chamber of Commerce in its representation to DGTR submitted that the economic development of India needs a consistent and regular supply of solar cells.
“If any safeguard measures are imposed on products under consideration, it will have a significantly negative effect on the public interest of India, including but not limited to the various downstream industries and consumers in India; the healthy development of the solar cell industry; the rural electrification projects initiated by the current government,” its petition read.
If these basic facts have occurred to Chinese companies, no doubt the Indian government and regulators are aware of them too. The need for helpful action is more urgent than ever if the solar industry is not to head the way of stressed thermal power assets.