New Delhi: The imposition of Basic Customs Duty (BCD) of 25 percent and 40 percent on imported solar cells and modules is likely to result in an increase in the capital cost of a solar power plant project by 23-24 percent which will raise tariffs, said ratings agency ICRA. The commentary comes just days after the Minister of New and Renewable Energy (MNRE) announced the imposition of BCD on solar cells and modules from April 1, 2022. This essentially means that imports of these equipments will become costlier. The move is aimed at providing a fillip to the local manufacturing capabilities.
In its report, ICRA said that the step would have a positive impact on domestic equipment manufacturers though the extent of benefit would depend upon the imported PV module prices, especially from China.
Girishkumar Kadam, co-group head, ICRA ratings, said that the imposition of BCD is expected to increase the capital cost for a solar power project by 23-24 percent, which in turn would lead to an increase in tariff by about 45-50 paise per unit. "However, the bid tariff trajectory is likely to remain well below Rs 3 per unit and thus, would continue to remain cost-competitive from the off-takers' perspective," he added.
Kadam said that for state-owned utility off-takers, average power purchase cost and variable cost of power purchase will remain in the range of Rs 4-5 per unit and Rs 3-3.5 per unit, respectively, in many states.
The proposal announcing the imposition of BCD released by the government on March 9 lacked any clarification over the continuation of safeguard duty on imported cells and modules. The safeguard duty is currently at 14.5 percent and is valid till July 2021. The government proposal said that for the project already bid out and having scheduled commissioning date post April 2022, the levy of BCD is expected to be a change-in-law event under the power purchase agreement.
ICRA said that in such cases, timely approval by respective regulatory commissions and pass-through of the tariff increase to the off-takers would be critical from the cash-flow perspective for project developers. "In addition, the module price trends remain a key monitorable for the solar power developers, in view of the recent firmness in the imported module prices," it added.
Vikram V, sector head, ICRA Ratings, said that based on an imported module price level of 18 cents per Watt and prevailing rupee-dollar exchange rate, the domestic modules are costlier by 12-15 percent without the impact of BCD. He added that the imposition of BCD will bridge this gap and make solar modules from domestic manufacturers competitive against the imported modules. The extent of benefit would be higher for manufacturers having backward integration into cell manufacturing.
However, ICRA said that clarity was required on the applicability of BCD on manufacturers located in the SEZs, as a large portion of the manufacturing units in India are at present located in these regions.
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