Odds of Relief for Large Solar Developers In India Continue To Increase

Weeks after iterating his goal to push domestic manufacturing using every tool at his command, Power and MNRE Minister R.K. Singh faces a stiff test of resolve. The ‘perfect storm’ of events that was considered all but impossible till 12 months ago has come to pass, and the government will soon need to take a call on some very critical announcements. We had indicated this 10 days ago, and reckoning seems to be closer than ever.

Top of those will be the announcement to impose a 40% import duty on module imports, and a 25% level on cell imports. Till a few months back, these were finally considered settled issues, especially with the safeguard duty ending on July 29, 2021. It did seem like the government would allow project developers the 8 month window of ‘opportunity’ between SGD ending and customs duty starting. Now, all that seems laughably wishful, considering all that has happened since then.

Overall module prices are up by 30% and more, going by feedback we have received from developers. Even domestic manufacturers have followed suit, as key inputs continue to be imported.

Fresh capacities that have been announced, and more that is in the pipeline, will only start making a serious dent by 2022 end by most estimates, and in any case, even the MNRE’s own ALMM list has a total approved capacity of 8.5 odd GW between all the approved manufacturers. Even the PLI scheme which should add 10-12 GW capacity, is yet to pick its final winners. With key manufacturers committed to exports too, there is no way the domestic manufacturing numbers can add up to projected solar capacity additions of 25-30 GW planned from 2021-23 at least. Keep in mind that these will cover a significant chunk of the 35+ GW of projects in the pipeline, most of which haven’t yet placed procurement orders yet.

R.K. Singh has indicated the possibility of extending the date for start of duty regime, or even a further extension for projects that have been tendered. The latter, or ‘grandfathering’ of projects already bid out before April this year, was always an option, except that the government faces the unenviable task of expanding the list even more now, if the current supply situation persists.

Either way, the government is caught once again between manufacturers who will point to the investments they have made in the assumption of tariff protections, and developers who will point to the assumptions that have evaporated since they bid, and won their projects. Even a one year extension for projects, as reports have quoted developers asking for, is no guarantee that the situation will stabilise sufficiently by then.

China has announced some ambitious solar projects of its own, including a possible 100 GW project in the desert regions, North West of the country. Expect little respite on the supply side for now.