Directorate General of Safeguards recommends 70% safeguard duty on solar imports for 200 days. The recommendations are preliminary findings of the Directorate and the matter is pending before the GOI. The reason behind the recommendation is to protect the domestic solar energy industry against serious injuries from the surge in solar imports. But is it really so? Our analysis suggests the following:
Safeguard duty of 70% will result in the increase of capital cost of future projects by 38-42%.
Latest Solar energy tariffs will come to the same level as they were 2-3 years back.
Solar panels constitute 55%-60% of the total cost of a solar energy plant. Cost of China-made solar panels is lesser than the markets of the EU or the US. Depending on the technology of solar panels used their average cost is in the band of 0.30-0.40 cents/Watt (INR 19-26/Watt). If at all the GOI goes ahead with the plans to impose 70% safeguard duty it will increase the capital cost of a solar energy plant by 38-42%.
Depending upon the location, timings of the bid, currency exchange rates of past two years, support available form from the government/nodal agencies (provision of land, evacuation facility for solar parks) & GST, Team SolarDae has analysed the impact on solar energy tariffs of reverse auctions of CY 17.
NTPC DCR category solar energy auction of 250 MW has been annulled following disputes with WTO (Read). MNRE will tender the capacity again but under open category. The tariff of this auction would remain unaffected by the safeguard duties but others will go up as shown in the chart.
CY 2017 was the year when solar tariff breached INR 3 and showed a consistent record low solar energy tariffs. If at all safeguard duties come into the picture even the minimum tariff will be over and above INR 3.
The tariffs in solar energy auctions in December 2017 was INR 2.47 & 2.48. Although these tariffs were slightly higher than INR 2.44, developers were able to quote such low tariffs on the back of rising costs of solar panels. Of the eight auctions held in 2017 four times, solar tariffs were under INR 3. These rates are at par with the rates of conventional sources of energy. That is why even DISCOMS will prefer to buy solar energy at as low rates as possible. In fact, many state DISCOMS have renegotiated agreements on solar tariffs for this very reason. If the rates go up again from these low levels DISCOMS will be hesitant in purchasing power.
The above graph shows that when 70% safeguard duty is applied on tariffs of 2017 they reach close to levels that were new lows in 2015 & 2016. Some solar energy tariffs are still too low but too costly for DISCOMS to purchase them. The solar industry has become a full buyers’ market. Increasing solar tariffs will upset DISCOMS. The solar energy industry will be pushed back by 2-3 years making it a case of an arrested development.
Should we say a big NO to Safeguards on solar energy?