Impact of Import Duty on Solar Panels & Effect on Its Price

INTRODUCTION

Since ancient times, the Sun has been revered as a life-giver to our world. The Industrial Revolution taught us how to use sunlight as a source of energy.

India has a tremendous amount of solar energy potential. India’s land area receives about 5,000 trillion kWh of energy each year, with most sections receiving 4-7 kWh per sq. m every day.

Solar photovoltaic power can be effectively harnessed in India, allowing for massive scalability. Solar also provides for dispersed power generation and allows for rapid capacity expansion with short lead periods. Rural electrification and addressing other energy needs for power, heating, and cooling in both rural and urban areas would benefit from off-grid, decentralized, and low-temperature applications. In addition, solar is the most secure of all energy sources in terms of energy security because it is abundantly available.

A small proportion of total incident solar energy (if captured correctly) might theoretically meet the entire country’s electricity needs.

During the previous several years, solar energy has had a noticeable impact on the Indian energy landscape. In addition, India’s solar energy sector has grown to become a prominent player in grid-connected power generation capacity throughout the years. It promotes the government’s agenda of long-term prosperity while also establishing itself as an important contributor to meeting the country’s energy demands and a key role in ensuring energy security.

SOLAR GROWTH MISSION OF INDIA

The Mission aims to make India a global leader in solar energy by establishing regulatory conditions that allow solar technology to spread as swiftly as possible across the country. By 2022, the Mission hopes to have installed 100 GW of grid-connected solar power plants.

This is in accordance with India’s Intended Nationally Determined Contributions (INDCs) goal of achieving roughly 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 and reducing the emission intensity of its GDP by 33 to 35% from 2005 levels.

ROLE OF IMPORT DUTY ON SOLAR PANELS

But to encourage local manufacturing and reduce the dependence on foreign companies to import solar modules, India is on increasing the import duty.

From April 1, 2022, the government would levy a 40 percent basic customs tax (BCD) on solar modules and a 25 percent BCD on solar cells, making imports more expensive and giving a space for the creation of panels locally.

According to a notification issued by the ministry of new and renewable energy, the goal is to become a leading global provider of these commodities while also serving India’s domestic needs.

From April 1, 2022, the two items that presently do not attract BCD will be subject to it at the given rates. There will be no grandfathering of power projects that have already been bid out, as the one-year term was already enough time for developers to get the necessary raw materials.

According to power and renewable energy minister Raj Kumar Singh, India proposes to impose higher tariffs on solar cells and modules beginning April 1, 2022.

The notification stated, “The ministry of finance has also recommended that the customs notification in this regard will be issued at the right time.“

The customs duty will replace a 15 percent safeguard duty on goods from China and Malaysia. The news comes after the government announced a production-linked incentive (PLI) scheme to provide a total benefit of $1.97 trillion to producers in ten industries, including high-efficiency solar modules. As Mint previously reported, the proposal has gathered steam, with 15 businesses mulling total expenditures of roughly $3 billion to develop solar equipment manufacturing plants here.

ATMANIRBHAR BHARAT AND SOLAR SECTOR

“Right now, India’s solar sector, like that of any other country, is reliant on solar equipment imports. However, the government has also identified instances of specific countries dumping solar cells and modules to undermine the budding home industry, prompting the imposition of safeguard taxes.

Chinese companies dominate the solar component market. In 2018-19, India imported $2.16 billion in solar photovoltaic (PV) cells, panels, and modules. Due to increased imports, the government imposed a safeguard tariff on solar cells and modules imported from China and Malaysia beginning July 30, 2018. The safeguard obligation, which was supposed to expire on July 29, has been extended for another year.

“The covid-19 pandemic disrupted worldwide trade, including solar module and solar cell imports, limiting solar capacity additions.” Given India’s massive solar ambitions and the fact that energy is a critical sector of the economy, the country must build local solar manufacturing capacities and reduce its reliance on imports to avoid disruption.

The measure will raise the cost of solar cells and modules imported from China. India wants to play a bigger role in global supply chains and utilize its expanding green energy sector to boost manufacturing.

“The Atmanirbhar Bharat project has set the country on a path to increase local manufacturing.” India could export solar cells and modules if local solar manufacturing is scaled up. This would also provide other countries with alternate solar cells and modules source.

By 2022, India will have completed the world’s largest clean energy program, with 175 gigawatts (GW) of renewable energy capacity, including 100 GW of solar power. According to the Central Electricity Authority, the country’s power demand by 2030 would be 817GW, with clean energy accounting for more than half of that and solar energy accounting for 280GW. To meet the 280GW target, roughly 25GW of solar energy capacity must be installed each year until 2030.

Previously, the ministry of new and renewable energy advocated for implementing BCD on April 1, 2021. India was considering grandfathering existing bids by allowing a pass-through in power pricing for projects granted before the BCD was to be imposed to protect solar project developers as part of the scheme. Later, the plan was scrapped.

Conclusion

“In light of the previous, the undersigned is directed to notify all RE implementing agencies and other stakeholders, and to include provisions in their bid documents so that bidders take the trajectory into account when quoting tariffs, in all bids where the last date of bid submission is subsequent to this office memorandum.” The application of BCD as per the above trajectory in all such bids should not be regarded a change-in-law.

India’s massive step towards the rise in import duty has opened the doors of creating a global footprint in the Solar sector; it will leverage the manufacturing of panels locally and encourage internal growth.