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All solar projects funded by the Central or State governments will now be required to procure modules only from approved domestic manufacturers.
The Ministry of New & Renewable Energy issued the approved list of models and manufacturers (ALMM) on Wednesday, a day after its memo declaring the imposition of a basic customs duty on imported solar modules and cells of 40 per cent and 25 per cent, respectively. The ALMM will become applicable for all new governments projects from April 10 this year, while the duty will come into force starting April 2022.
“The ALMM will be an informal non-tariff barrier to restrict the access of foreign firms, especially Chinese manufacturers, to the Indian market,” a senior official told BusinessLine .
Despite the duty, Chinese supply could still be routed through East Asian countries with whom India has inked free trade agreements. The ALMM effectively makes that unviable as foreign players are technically allowed to get themselves registered on the list, but with the extensive document validation process and travel restrictions due to Covid-19, it will take them at least one-and-a-half years, the official said. Going forward, the government is also unlikely to approve any foreign manufacturer, the official added.
“India has to ensure the quality of the solar modules in our projects because they need to work for 25 years,” the official said. “There is no sanctity of contract with Chinese manufacturers. Domestic players will be reliable because they know they can get blacklisted.” Manufacturers on the ALMM will be subject to production and sales audit and random inspection visits and quality checks.
Duty on SEZs
The basic customs duty alone is expected to make the domestic modules competitive with imports, but will also hit developers of solar projects.
“The duty is expected to result in an increase in the capital cost for a solar power project by 23-24 per cent. This, in turn, would result in an increase in tariff by about 45-50 paise a unit. Nonetheless, the bid tariff trajectory is likely to remain well below ₹3 per unit and thus would continue to remain cost competitive,” said Vikram V, Sector Head, ICRA Ratings.
While both the duty and the ALMM will give them a boost, domestic manufacturers have also raised concerns about the possibility of the duty being levied on the country’s special economic zones (SEZs). About 43 per cent of India’s domestic module manufacturing units and 63 per cent of the cell manufacturing units are located in SEZs, according to industry estimates. “The levy of customs duty on SEZs is a larger issue. The Ministries of Finance and Commerce are deciding on this matter,” the official said.
“The manufacturing capacity in SEZs is still small compared to the much greater capacity addition we expect to see now” after the duty and ALMM, the official added. India currently has a module production capacity of around 9-10 GW and a cell manufacturing capacity of 2.5GW.
“Domestic manufacturers are also keen to export,” the official said. In case SEZs do end up under the jurisdiction of the duty, “the units in these areas can service the international market,” the official said.
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