3.5 Gw of solar tenders in limbo, thanks to tax and regulatory niggles

Lack of clarity over tax and regulations in the solar sector has pushed close to 3.5 Gigawatt of tenders to cancellation or delay for more than a year now. Of this, 980 Megawatt (Mw) of projects were under the domestic content category that has been shrouded in controversy.

Under the National Solar Mission, the Centre has kept a separate capacity to be awarded for projects built on domestic content. For the domestic content requirement (DCR) clause, the United States has dragged India to the World Trade Organization (WTO) for preferential treatment to the indigenous industry. This comes at a time when the domestic solar manufacturing has complained that “dumping of panels in India by China has hurt them and reduced their capacity utilisation by more than 80 per cent.”

Some of the cancelled tenders were for large projects announced during 2015-16 and were facing delays and uncertainty on tariff. Last year, solar tariff witnessed a record fall of 60 per cent to Rs 2.44/unit. NTPC’s 750-Mw tender in Andhra Pradesh, Karnataka and 250 Mw under the DCR category in Karnataka got cancelled after the delay of more than one year.

Three tenders for the Kadappa Solar Park totalling 950 Mw to be awarded by central agency Solar Energy Corporation of India (SECI) are now cancelled. This included 150 Mw under the DCR category. The others in the DCR category cancelled are 200 Mw project of Coal India in Madhya Pradesh, 130 Mw of NLC in Rajasthan, and 250 Mw by SECI in Karnataka, out of which the LoI has not been issued for over 600 days now.

Sector executives said the tariff is being recalibrated as various factors have come into play since the past one year. The major being the new tax regime GST which has imposed five per cent rate on solar equipment panel from earlier zero tax. The other is the customs duty of seven per cent on the solar panel imports which some ports in India are levying. The tax authorities are yet to give any clarity.

One major variable that may impact the prices is the impending decision of imposing anti-dumping and safeguards duty on solar imports coming from China, Malaysia and Taiwan. The Directorate General of Safeguards (DGS) in its preliminary report investigating the dumping of solar cells has suggested a duty of 70 per cent on the imports coming from China. Industry expects a hike of Rs 1-2 per unit in the solar tariff, if the duty is imposed.

In the Union Budget 2018, the government also announced a 10 per cent surcharge on the customs duty on import of all items, including solar. Close to 80 per cent of India’s solar power is based on imported content. Solar panels from last year onwards have been inviting 7.5 per cent customs duty. Sector executives said a 10 per cent surcharge over it would escalate the cost of panels and might impact the tariff as well.

“After a very strong year, the sector now finds itself beset with uncertainty. More than the duties themselves, it is the uncertainty of not knowing what is coming and when that has left the industry in a very tough spot. Government agencies need to come out quickly and resolve these issues to maintain positive investor sentiment going forward,” said Raj Prabhu, CEO and co-founder of Mercom Capital Group.

India added a record six Gw of solar power capacity during the last year, taking the cumulative solar installed capacity to 17.3 GW, as per the data on the website of ministry of new & renewable energy. The target for the current financial year is nine Gw. India aims to build 100 GW of solar power capacity by 2022.  

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