Solar Energy Demand in India Is Suspected to Drop after the implementation of Safeguard Duty

Government of India’s commitment to install 100 GW solar energy by 2022, created huge opportunities, brought foreign investment opportunity (more than $100 bn), created 416,000 jobs in India in 2015, brought opportunity of industrial development, and made India the second most attractive renewable energy market in the world. However, on July 30th 2018, India’s Ministry of Finance bringing forth 25% safeguard duty imposition on solar imports have created a new hurdle for Indian solar growth.

solar power

Current Scenario

Even though High Court in Orissa ordered to put a stay on the implementation of the safeguard duty, the ministry went forward and levied the same on imported solar panels and cells. The market assessment and growth predictions showed tremendous loss for Indian solar panel manufacturers and the industry itself. And to find a remedy to the incoming issue, Indian solar panel manufacturers appealed to Orissa High Court and the Court ordered a stay of duty imposition on imported solar panels and cells. But currently, Supreme Court of India has ruled in favour of allowing 25% duty on imported solar modules and cells (effective from July 30, 2018), till the next hearing in October. Otherwise, the next hearing introduces a different result, imported solar modules and cells along with SEZ solar cell and solar panel manufacturers in India will have to pay the 25% safeguard duty.

Why Resist The Safeguard?

25% safeguard duty on solar module and cell imports would have helped the industry and the domestic manufacturing sector by creating demand. But as domestic solar manufacturing units within the special economic zones (SEZ) were not exempted from this duty imposition, the primary purpose of this duty stands to contradict itself.

In current form of this duty, there is no exemption to SEZ based manufacturing units, which by the way is the hub of solar panels manufacturing in India. 40% of Solar Panel Manufacturing Units and 60% of Solar Cells Manufacturing Units are located in SEZs.

solar energy

Therefore, currently, safeguard duty does not present any opportunity, but stands to do more harm than good. Imposing 25% safeguard duty on SEZ based domestic solar module and cell-manufacturing units will increase solar panel price in India (through making production expensive) and push domestic manufacturers of business. The duty will also bring in issue of job losses, as the demand for domestically manufactured modules and cells fall. This development is suspected to reduce Indian solar power demand by 30%. Demand in the second half of 2018 is expected to go below 3.5 GW and Q1 2019 is suspected to see even a weaker solar power demand trajectory. Additionally, surveys show that China’s recent solar policy will make imported solar modules and cells competitive in the Indian market even after the 25% duty, thus undermining the purpose of safeguard duty, while 25% duty pushes domestic manufacturers out of the market.

Possible Remedy

The Government should limit the SGD on the input cost for modules manufactured in SEZ and cleared to DTA. SGD should not be applicable on the value addition done in manufacturing units located in SEZ and exempt projects, which have already been auctioned out from the ambit of duties of Safeguard to remedy the situation.

solar panels

India needs to understand that focusing on importing solar modules from China, will only lead to further damaging the Indian solar power manufacturing industry and put India’s vision for solar reliance in question. Chinese suppliers already hold more than 80% market share within Indian solar market and in 2017, India spent $3.8 bn importing solar modules from China. Considering this scenario, imposition of 25% safeguard duty on SEZ based solar energy companies/manufacturers will undoubtedly destabilize the domestic solar industry, exposing Indian manufacturing industry to a huge exposure to currency risk, since we are so dependent on imports. The effects are already perceivable as companies are thinking of pulling out of solar projects in fear of bearing the additional burden of the safeguard duty. Also Government of India consistently trying to reduce the solar tariff is another issue that is halting the growth of solar, as seen when solar projects standing at the cumulative capacity 3.9 GW was cancelled in 2018 by GUVNL, UPNEDA, SECI in a bid to drive down the tariff even lower.

Therefore, the only way to maintain solar energy growth in India would be to put solar panel manufacturers located at SEZ at par with manufacturers located in Domestic Tariff Area (DTA). Additionally, tariff stabilization, and more investment in solar manufacturing is also needed. Prioritizing domestic manufacturing is how dominating solar countries have scaled such heights and now India should follow in their footsteps to bring in industrial and economic growth.