Import duty on solar panels: Where is the safegaurd?

The 25 per cent safeguard duty on solar panels cells imported from China and Malaysia has had both domestic manufacturers of cells and solar energy companies beating their foreheads on the desk. Neither group is happy with the recommendation of the Directorate General of Trade Remedies (DGTR), a recommendation, which if accepted and notified by the Ministry of Finance, could cause, according to the ratings agency, ICRA, a 30-35 paise raise in solar electricity prices.

Energy security

In public, domestic manufacturers welcome the move — their statements are marvels in political correctness. Waaree Energies said: “The current proposal from the DGTR comes as a relief and further strengthens our faith in the Government’s support towards Indian manufacturers. Imposition of 25 per cent safeguard duty will provide the required boost to solar cells and module manufacturers. We believe it will help achieve the required energy security in the country, and motivate players to become active partners, as India transitions towards becoming a renewable energy reliant country.”

However, other manufacturers, who spoke on the condition of anonymity, said that the 25 per cent duty is hardly any protection, given that the prices of cells made in China have crashed over the last six weeks after the country’s decision to limit incentivising solar installations. Consequent upon the move, several analysts have downscaled solar installations in China in 2018. One market research firm, GTM Research, pared China solar capacity additions to 28.8 GW from 48 GW, before the Chinese government took the decision on June 1.

One Indian manufacturer said that since June the prices of cells from China have crashed from 22 cents a watt earlier to 12.

Earlier, on January 9, the Directorate General of Safeguards had recommended a provisional safeguard duty of 70 per cent applicable for the following 200 days, but it was withdrawn in May. That was before the crash in cell (and therefore) module prices. And now, the recommended duty is 25 per cent. The general refrain among manufacturers is that the duty is not going to protect the domestic industry.

Sujoy Ghosh, Country Head, First Solar, a US-headquartered solar panel manufacturer that has facilities in Malaysia, points out that “there are pass through provisions in the recent PPAs on the duty impact”. This means that the rise in cost due to any duty can be passed on to the buyer — therefore, it is not going to stop the energy company from importing.

“Domestic cell manufacturers anyway have to import wafers. If Indian cell manufacturers are given safeguard duty protection, wafer suppliers might increase the prices,” Ghosh says.

Inasmuch as the duty will imply a rise in solar tariffs, the energy companies are not happy, because any rise in tariffs will make solar less attractive to the buyer of the power, mainly the state-owned electricity distribution companies.

“Eventually, no one would benefit from this order if the demand shrinks, contrary to the recommendation being in public interest,” says Ghosh. He says that if the government wants to encourage domestic manufacturing, it could consider giving tax breaks and cheaper capital for attract investments.

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