Solar projects awarded before tariffs changed enabled cost pass-through

Solar power projects awarded before the entry into force of the basic customs duty (BCD) on imported equipment were allowed by the government to pass on the additional cost of purchasing expensive cells and modules.

The government imposed 25% BCD on imported solar cells and 40% on imported modules from April 2022 to support domestic manufacturing. Almost 85% of Indian solar capacity is built on imported cells and modules, mainly from China.

A notification from the Ministry of New and Renewable Energy (MNRE) on Tuesday said: “Solar photovoltaic (PV)/solar PV-wind hybrid power projects in which the last date for submission of bids was no later than the announcement of the March 9, 2021, the Renewable Energy Implementing Agencies may consider imposing BCD on the import of solar cells and modules under a “Law Amendment”, unless denied under a specific provision of the tender document.”

READ ALSO: Lack of photovoltaic modules slows down projects in the solar energy sector

The “change in law” would help earlier tender projects pass on the extra cost of imported solar cells and modules under the BCD regime.

The DNRE has also granted a similar exemption to projects awarded before September 30, 2021 on the new GST rates of 12% on the various components of the solar project. This was 5% earlier and this rise would also be considered under the “change in law” provision and project developers may seek to pass on this cost.

‘Business Standard’ recently reported that developers of solar power projects faced significant cost increases due to BCD and GST, delaying project development. Sources said major project developers, including state-owned NTPC Ltd, are not using domestic suppliers for their solar module tenders.

This had reached nearly 20 Gw of solar power capacity in the pipeline since last fiscal year and several project developers may be looking at rising costs, prompting a revision of the rate at which they won projects. The list includes record low tariff projects such as NTPC’s 200Mw project won at Rs 1.99 per unit, senior company officials have said.

Industry experts have also pointed out; the supply of domestic modules represents less than half of the sector’s demand. At the same time, the price of solar modules jumped 30-40%. Indian solar modules typically cost 10 to 15 cents more than those made in China, the world’s largest supplier. The cost of solar PV modules in the global market is around 28 to 30 cents per kWh, while Indian modules cost around 40 cents per kWh, experts said.

According to JMK Research, the manufacturing capacity of solar cells (module component) in India is 4 GW while module is 18 GW. Additionally, Indian module makers are importing cells which have also experienced price hikes, as well as supply chain issues.

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