‘Grandfathering’ Of Solar Projects Bid Out Before March 9, 2021 Back on Agenda

The thorny issue of protecting projects that were bid out before March 9, 2021 subsequent to which the Power and MNRE Minister R.K. Singh announced plans to impose high customs duties on Solar module and cell imports, moved a step closer to a resolution it seems.

Mr Singh has confirmed that the MNRE ministry has written to the Ministry of Finance to exempt these projects from the enhanced duty regime set to kick in from April 1, 2022, or a week from today.

According to the developer body of Solar firms, the National Solar Energy federation of India, projects at risk add up to almost 28 GW, a much higher figure than quoted earlier, mainly due to delays caused by the pandemic related shutdowns and more. For all these projects, the new BCD regime of 40% duty on module imports and 25% on cell imports will need to be considered a change in law event, and permission to hike end prices escalated accordingly. That risks making many of these projects unattractive for buyers, besides causing many other legal issues on calculation methodology and more.

The issue of ‘grandfathering’, or exempting these older projects from the new regime has always been in the picture, although the usual last minute moves indicate that the government wants to avoid too much discussion as and when the Ministry of Finance heeds its request. That is because domestic manufacturers and manufacturing per se, for whose growth and expansion the new duty regime has been proposed, are unlikely to take kindly to the move, as they accuse large developers of stockpiling during the zero duty regime that has existed ever since the safeguard duty was phased out in July this year. Besides tariff, the MNRE has also moved to provide a larger addressable market for domestic manufacturers by expanding the scope of its ALMM list and mandate, which is yet to have any foreign manufacturer in it yet, effectively acting as a powerful non-tariff barrier.

Even the  stockpiling claims linked to large developers will need to be taken with a pinch of salt, as 2021-22 saw a reversal of the drop in module prices that was almost taken for granted over the past few years. Thanks to shortages of raw materials as well as logistics disruptions in China caused by Covid shutdowns, prices have been elevated all through the last 12 months, taking away a significant if not full benefit of the zero duty regime that has existed.

With India’s domestic capacity set to double by 2023, and an even further expansion post that on the back of the PLI scheme for solar, the issue and arguments of availability look set to be a short term challenge, and grandfathering might yet be the only effective way out of it, even as it meets manufacturer demands half way. The other option, of delaying the new duty regime, has already been dropped.