Solar: Policy consistency is imperative

The solar capacity in the country has crossed barely 16 GW in November 2017. That leaves a lot of road to be covered before achieving the envisaged target of 100 GW by 2022. However, the solar price arrived through competitive bidding process coming down to Rs.2.44/kWh made it quite a competitive source of energy elevating its prominence further as a sustainable source of energy for India's future.

A few days back, the Directorate General of Safeguards' (DGS) proposed to impose a 70 per cent safeguard duty on solar PV imports citing 'serious injury' to the domestic industry from spike in imports. This has stirred up the industry again. The avowed aim is to give a boost to the domestic solar cell and module manufacturers, thereby creating more jobs in the sector.

Following the moves like levying of 7.5 per cent import duty on modules and Goods and Services Tax (GST) on a range of solar inputs, this proposal has brought in sharp reactions questioning its rationale and raising the issue of possible power price rise it would lead to, from several industry stakeholders - manufacturers in SEZs, EPC contractors, investors etc.

According to some estimates, the final duty in the range of 30-70 per cent would mean solar tariff would need to go up from 17-35 per cent, or about `0.45-0.90/kWh, to maintain financial returns of project developers. As such, the duty is expected to affect the project costs and threaten viability of projects that were bid for at lower levels and those under construction.

Though it is premature to be judgemental about this proposal, the government's solar policy betrays lack of consistency, though it has given a thorough impetus to the sector in the Union Budget 2017-18.

For a couple of months after introduction of GST, there was confusion about rates applicable to various solar inputs, and recently import duties were brought in, leading to input prices firming up.

The biggest problem facing the industry today is the states reneging on PPAs they have signed during the recent years when the solar prices were ruling higher, citing lower solar power prices currently. Though there is no evidence of cancellation of PPAs, there are instances of lower-than-contracted payments and/or resorting to grid curtailments reported from several states. Solar tariffs fell 80 per cent in six years. Though the solar price is said to have slid to Rs.2.44/kWh, that has happened only in the cases where viability gap funding component was available to the project, and the levelised tariff in such cases also was at a higher level. Even then SECI, the nodal agency that bids out projects, has limited the maximum tariff payable to solar developers to Rs.2.93/kWh for some recently announced projects.

In these circumstances, the solar industry is looking for stable policy regime than anything else. If the safeguard duty can create a conducive environment for the domestic PA without any negative impact, then it would have been a welcome move. But there should not be any move that would spike the lifetime cost of these projects. At a time when solar industry is at a takeoff stage, it should not be like throwing a spanner in its works. As such, it is advisable for the government to do a fine balancing act while considering any change in the solar power project environment.

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