3 GW of solar projects at risk due to 70% safeguard duty

Levying 70% provisional safeguard duty on imported solar panels and modules from China and Malaysia will put around 3 Gigawatt (GW) of solar projects under implementation, worth over Rs 12,000 crore, at risk says CRISIL Ratings.

As 4 GW of solar projects were auctioned during the calendar year 2017, these are now under various stages of implementation.

As has been a norm, orders for solar modules are placed from China and Malaysia as they are cheaper compared to the other markets and the orders are placed with a lead time of one year. Solar modules account for around 55% of a solar project’s cost, and 80% of them are imported from China and Malaysia.

“Assuming 1 GW of excess inventory to be in transit, about 3 GW of capacities would be yet to tie up their module requirements. These projects were auctioned at low tariffs, so any rise in equipment cost after the safeguard duty would crimp the cushion that developers have to service debt,” said a statement by CRISIL Ratings.

On the subject, Subodh Rai, Senior Director, CRISIL Ratings said, “The 70% safeguard duty proposed will also inflate project costs by about 25% and crank up viable tariff to Rs 3.75 per unit from around Rs 3 estimated earlier, making solar power less attractive to discoms. That would also be more than the average power purchase cost of 10 out of 14 discoms last fiscal.”

The Ministry of Finance, through its Standing Board of Safeguards, will take a final decision on the imposition of safeguard duty either on the provisional or the final recommendations of the Directorate General of Safeguards.

Speaking about the future of solar projects, Manish Gupta, Director, CRISIL Ratings said, “Prolonged uncertainty on the quantum and timing of implementation of the safeguard duty will reduce developer interest in future bids and also impact investor confidence in terms of certainty of returns.”

Therefore, going forward, retrospective application of safeguard duty – on which the viability of the about 3 GW of solar projects hinges – would be a key monitorable.