Custom Duty on Solar PV Cells to Support OEMs: ICRA

The imposition of basic customs duty (BCD) on imported solar PV cells and modules will support domestic OEMsm, ICRA said in a note.

Earlier, the Centre had approved a proposal to impose a BCD of 25 per cent on imported solar PV cells and 40 per cent on imported solar PV modules, with effect from April 1, 2022.

As per ICRA note, while this move will support domestic OEMs, it is likely to result in an increase in solar tariffs.

However, clarification is awaited on the continuation of the safeguard duty (SGD) on imported cells and modules, which is currently at 14.5 per cent, valid till July 2021.

"This is expected to result into an increase in the capital cost for a solar power project by 23-24 per cent," said Girishkumar Kadam, Co-Group Head, ICRA Ratings.

"This in turn would result in an increase in tariff by about 45-50 paise per unit. Nonetheless, the bid tariff trajectory is likely to remain well below Rs 3 per unit and thus, would continue to remain cost-competitive from the off-taker's perspective."

At present, the state-owned utility off-takers, average power purchase cost and variable cost of power purchase remain in the range of Rs 4-5 per unit and Rs 3-3.5 per unit respectively in many states.

According to the note, for the project already bid out and having a scheduled commissioning date post-April 2022, wherein modules may be imported post this date, the levy of BCD is expected to be a change in law event under the power purchase agreement (PPA).

In such cases, the ICRA noted that timely approval by the respective regulatory commissions and pass-through of the tariff increase to the off-takers would be critical from the cash flow perspective for the project developers.

In addition, the module price trends remain a key monitorable for the solar power developers, in view of the recent firmness in the imported module prices, the note said.

"The imposition of BCD on imported solar cells and modules is expected to improve the competitiveness of domestic cell or module manufacturers," the note said.

"However, the extent of benefit would also depend upon the imported PV module prices, especially from China."