Valid PPAs Before Aug 1 to get Exemption on Higher Duty on Imports

Solar projects with valid PPAs before August 1, 2020, will be exempted from the proposed higher import duty on solar equipment and components.

Solar power developers, that are still on course or in the process of starting work on the development of new solar projects in the country might be exempted from paying the newly proposed higher customs duty on import Chinese equipment for their projects. As per a new report, a power ministry official has said that projects with valid power purchase agreements (PPAs) before August 1, 2020, will be exempted from the proposed import duty on solar equipment and components even if such imports are to be done from China. 

However, this will only be a one-time exemption as the centre under its ‘Atmanirbhar Bharat’ mission wants to restrict imports of all equipment for which domestic manufacturing is existing.

The move can also be compared to the ending of the Federal Tax Credit system in the United States for renewable energy projects. Which saw multiple project developers rushing to finish projects in time to be able to secure the tax redemption. A similar flurry of project announcements and PPAs might be witnessed in the Indian Market now.

The Power Ministry had recently proposed a 20-25 percent basic customs duty on solar module imports for the current year that will go up to 40 percent level in the next year. Also, the duty on solar cells has been proposed at a 15 percent level for the first year and a higher 30-40 percent level in the next year. The levy has been proposed to become effective from August 1, when the existing 15 percent safeguard duty on solar component imports expires.

The power ministry’s proposal on giving exemption to projects with PPAs would need to be ratified by the finance ministry. Sources said that Power Minister RK Singh has assured the industry that even if duty exemption was not available, the Ministry of New and Renewable Energy Sources would allow developers to claim reimbursements for duties paid.

Singh had previously informed reporters that he had told states to restrict imports in critical energy sector projects where domestic capacities existed. In the renewables space, imports stood at USD 2.9 billion in FY19 and about 70 percent of this was from China.

The proposal on customs duty on solar imports is part of a larger measure being looked at by the government through imposition tariff and non-tarriff barriers on imports of non-essential items coming from China. While the government has earlier put some restrictions on investment from neighbouring countries including China, the added dimension of confrontation between the armies of the two countries has fast-tracked the proposals.

Recently, it has also been reported that the centre is proposing a mega push to more than triple its domestic manufacturing capacity for renewable (solar) equipment so as to completely eliminate the need for developers to import equipment from outside.

As part of the plan, an accelerated manufacturing plan is being operationalised that is incentivising setting up of solar cell manufacturing capacity of 4,000 MW that would allow project developers to restrict the import of this product completely. Additionally, 3,000 MW of fresh solar cell capacity is being added under manufacturing linked bids for solar projects. This would incentivise power project developers planning to manufacture in India.