BCD Decision Sparks Predictable Reactions, Costs To Go Up By 50 p/unit

Three days after the formal confirmation of government plans to impose an enhanced Basic Customs Duty  (BCD) of 25 per cent and 40 per cent on imported solar cells and modules, respectively, the reactions have started coming in thick and fast. Dedicated developers, both those on record and off the record, have expressed their views strongly, calling the move not ‘planned through’, ‘predictable;, and of course, inflationary. Now, ratings agency ICRA has come out with the first of what should be many predictions on the impact on actual power costs.

Girishkumar Kadam, co-group head, at ICRA ratings has been reported saying that BCD is expected to result in an increase in the capital cost for a solar power project by 23-24 per cent, which in turn would result in an increase in tariff by about 45-50 paise per unit.

Thus, as expected, prices are expected to stay under the unofficial ‘discomfort’ level of Rs 3 per unit and above, even after the duty starts kicking in. Sub Rs 2.70 per unit is the unofficial limit on solar power today, and that could yet be managed with domestic supplies eventually. Though issue will remain around quality, as recent procurements have shifted decisively towards Mono-PERC and even Bifacial modules in some projects, while domestic capacity is still dominated by poly-crystalline output.

Ritu Lal,  Senior VP & Head – Institutional Relations, Amplus Solar, speaking on the MNRE notification, says  “High import duties will certainly lead to a significant increase in the cost of generation across all solar segments.
Import barriers can only be temporary measures. Eventually, Indian manufacturing will succeed only if we are able to compete in the global marketplace – in terms of price, technology, and scale”.

Pinaki Bhattacharyya, CEO & MD Amp Energy India adds that  “This move will slow down the race towards the 175 GW target by 2022 i.e. next year. Although this removes considerable uncertainty but the rates are too high and will increase the cost of solar power for discoms and consumers alike. This will increase the cost of manufacturing power as well as other industries in India. We understand that the intent of the government is positive and they want to encourage domestic manufacturing but the method should have been different. The government should have provided direct manufacturing subsidies to manufacturers to help them scale up their capacities and this would have been beneficial to the sector.”

For the government, making the shift to the higher duty structure, even while the fate of the SGD of 14.9 percent (expected to be phased out once BCD starts) has not been clarified yet, will depend on a series of players in the solar ecosystem moving seamlessly. From fresh domestic manufacturing capacities, to regulators moving faster on pending cases that are to come up before 2022, to clarity on the status of SEZ based manufacturers, who remain the dominant presence in manufacturing.

What seems highly probable is that buying from China and other low cost sources abroad will speed up massively by the end of 2021, as developers stock up for avoiding delays, should they have to go to regulators for getting the benefits of a change in law event from BCD imposition, for their projects awarded earlier.   Of course, this being India, we won’t be surprised if many developers actually do the reverse, if their projects are already behind schedule due to other causes, as such delays have usually been condoned by regulators and tribunals.

For Indian manufacturers, the 15 percent price gap they face vis a vis China origin imports, even after SGD in some cases, will finally be bridged, giving them a price advantage, though the final difference will be depend on whether Chinese manufacturers drop prices further.