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Thursday, 18 January 2018 17:17

Proposed safeguard duty make solar power less attractive to discoms: CRISIL

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The proposed 70% safeguard duty on solar panels imported from China and Malaysia will shoot up solar project costs by about 25%, making solar power less attractive to distribution companies, rating agency CRISIL has said.

"The 70% safeguard duty proposed will inflate project costs by 25% and crank up viable tariff to Rs 3.75 per unit from around Rs 3 estimated earlier, making solar power less attractive to discoms. That would also be more than the average power purchase cost of 10 out of 14 discoms last fiscal," Subodh Rai, senior director, CRISIL Ratings.

The Directorate General of Safeguards last week proposed a 70% safeguard duty on solar cells imported from China and Malaysia, citing a case of 'serious injury' to the domestic solar manufacturers on account of rising imports.

In 2017, India auctioned 4 GW of solar projects which are currently under implementation. The rating agency added that around 3 GW of these solar projects, worth over Rs 12,000 crores, will be put at risk if the safeguard duty comes to be implemented. These projects were auctioned at low tariffs, and any rise in equipment cost would crimp the cushion that developers have to service debt.

With over 80% of modules being imported from China and Malaysia, the proposed duty would lead to a sharp increase in the landed price of modules in the absence of alternatives and while these projects have a 'Change in Law' clause under which developers can seek relief, it is yet to be tested and may face legal or regulatory troubles, it said.

The final call on the application of the proposed duty is yet to be taken, but 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, the agency pointed out.

Manish Gupta, director, CRISIL Ratings said "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". 

Additional Info

  • News Section: Solar Energy News
  • Month: January
  • Year: 2018
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