Narendra Taneja, energy expert and national spokesperson for the BJP, observes “it is not smart that India should be dependent upon imports” for its ambitious solar program.

Taneja told BusinessLine that about 40 GW of capacity has already been bid out or in the process of being auctioned. This would involve investments of about the ₹2 lakh crore, majority of which will be for acquiring the solar modules. How long would India be dependent upon other countries for the modules, asks Taneja?

Taneja’s views are in total agreement with the government’s thinking. On Thursday, the Union Minister for Power and New and Renewable Energy, R K Singh, told reporters that the government intended to bring in basic customs duty of 25 per cent, which would be raised to 40 per cent next year.

The question of whether to erect tariff walls to enable the Indian manufacturing industry to develop behind them, or to let the Indian solar energy companies benefit from cheap imports of modules, has been a long-standing one.

However, many industry insiders that BusinessLine spoke to point out that the ‘boycott China’ mood is just the right setting for the government to bring in the promised basic customs duty on imported solar cells and modules, most of which comes from China.

“With ongoing China border issues, it is likely that 20 per cent of BCD will be applicable now on imported solar modules instead of earlier expected staggered implementation of BCD starting from 10 per cent in initial years to gradually to 20 per cent,” says JMK Research, a renewable energy consultancy.. The consultancy expects the government to notify the BCD before July 31, when the current 15 per cent safeguard duty will lapse.

The time for such an action is very opportune. Apart from the anti-China mood in the country, the solar tariffs (the prices at which energy companies are willing to sell solar power) are very low. The highest tariff discovered in any large capacity auction between January 2019 and now, has been ₹2.93 a kWhr of Adani Green. A rise in tariff because of the customs duty on imported cells and modules wouldn’t hurt the buyers much. (Cells produce electricity when light falls on them; modules are made with cells.) The main buyers of solar power, the various electricity distribution companies, are paying much more for the non-renewable energy they buy, as reflected in their ‘average power purchase cost’, which is around ₹4 a kWhr for most.

Secondly, India cannot continue to be forever dependent on China for its solar program. India imports about 90 per cent of its module requirements, and a number of it comes from China. Even as solar installations are coming down, India continues to import more, (see accompanying table) —though imports from China have dropped due to the impact of the safeguard duty.

Manufacturing capacity

India has about 10 GW of operational solar module manufacturing capacity. Some of the manufacturers are large (Waaree 2 GW and Adani Solar 1.5 GW), while others are small (Tata Power Solar 400 MW and Surana Solar 140 MW). But while these companies have managed to keep their shop running with some support from government-owned companies and rooftop solar markets, they have not been able to invest in expansion or R&D due to competition from imported products, mainly China, which heavily supports its industry with export incentives and sweetheart loan waivers.

Hitesh Doshi, Chairman and Managing Director of the Waaree Group, notes that the US and Brazil have had stiff tariff barriers, allowing a domestic industry to blossom. India, in contrast, has (now) zero duty on fully made modules but substantial duties on raw materials. For instance, the duty on EVA, a raw material, is 65 per cent.

Both Doshi and Narendra Surana, Director of Surana Solar, said that if the domestic industry could be protected from cheap imports for a few years, there would be major investments in local manufacture, leading to more jobs. The domestic manufacturers would be able to offer modules at competitive prices, they said.

Doshi said that duty on imports would have no impact on solar tariffs, given that the market this year will be small and the supplies would far outstrip demand. Surana said that at worst, there could be 3-5 per cent increase in tariffs—which could be easily offset by, say, 2 per cent concessional rate of interest to solar energy companies. He pointed out that agriculture and textiles are being given interest subvention—the demand for it by the solar industry would be much smaller.

Sunil Jain, CEO and Executive Director of Hero Future Energies, a renewable energy company, has suggested that the money collected as customs duties on imported modules could be kept aside for providing incentives to solar energy companies. The government is warm to this idea, Jain told BusinessLine.

“India has the potential to be the world leader in the entire solar value chain from cells and modules to R&D,” stresses Taneja.