Overshadowed by the safeguard duty row and the sharp depreciation in the rupee, India’s solar energy segment is staring at a period of policy and legal uncertainty, and possible tariff hikes.
The debate over the imposition of safeguard duty on solar cells has been going on for over a year, with the initial proposal recommending a 70 per cent duty for a period of 200 days. After months of debate and speculation, the Directorate General of Trade Remedies submitted its final recommendation, proposing a 25 per cent duty. The Ministry of Finance notified this recommendation, levying a 25 per cent duty on solar cells imported from China and Malaysia. The duty came into effect on July 30, 2018, when there was an ongoing case with the Orissa High Court, which had directed the government not to issue any notification regarding the safeguard duty until August 20, 2018. The petitioners – Hero Future Energies, ACME and Vikram Solar – again approached the high court, which then directed the ministry to withdraw the notification for the time being.
In another development, the rupee has depreciated sharply in the past few months, affecting both domestic solar developers and project component suppliers. The rupee dropped to a record low of Rs 70 per US dollar.
These developments will not only have an adverse impact on solar tariffs but will also slow down capacity addition in the sector. Most of the solar project tenders stand cancelled today or are facing bid submission deadline extensions due to the looming uncertainty over the duty structure.
Against this backdrop, it has become difficult to ascertain if the government will go ahead and push the case for imposing safeguard duties, driving up the cost of solar power projects and, hence, tariffs. If it decides to impose these duties on the ongoing and upcoming projects, an even bigger challenge will be to convince the already struggling discoms to procure solar power at higher tariffs.