Interview: Safeguard Duty Does Not Seem to Safeguard Interests of Solar Project Developers

DT Barki, technical director of Photon Energy Systems Limited comments safeguard duty makes domestic manufacturers happy, but not others in the value chain


India’s solar sector is currently dealing with a plethora of issues from all sides, while trying to keep pace to meet the 2022 goal of 100 GW it has set for itself. Now, there is another heated debate that has embroiled the industry: the imposition of 25 percent safeguard duty on solar imports. Amid these uncertain times, Mercom’s news team got in touch with DT Barki, the technical director of Photon Energy Systems Limited to discuss the implications of the current spate of activities in the sector and the prospects the sector is looking at in the future.

Here are the edited excerpts from the interview:

What are some of the other positive or negative trends that you see in the sector currently?

The positive trend in the solar sector is that it’s truly a “sunrise industry” with the advent of our PM’s ambitious 100 GW target by 2022. The flipside of this is that the sector is not equipped with the proper infrastructure and implement-worthy policies that are needed to make this target happen. Here, ‘infrastructure’ means wherewithal in terms of capital, robust evacuation infrastructure, low-cost finance, quality human resource, robust backward value chain (solar cells, silicon material). As far as existing solar module manufacturing in India is concerned, I must say that the quality and reliability of the modules churned out from most Indian manufacturers do not even match up to Tier-3 companies from overseas. The very fact that solar modules are expected to actively perform for over 25 years is not even comprehended by many Indian module makers.

The biggest financial challenge faced by solar developers is the access to low-cost financing and cheap private funding options. While developers are using cheaper imported Chinese modules and cheaper foreign funds and loans, those using indigenously manufactured modules have to avail more expensive loans and follow tedious banking procedures. To add to difficulties, developers are faced with inconsistent government policies.  This has diminished the confidence among the investor community. As a result, leaving India’s 100 GW of solar renewable energy target is overly ambitious, highly optimistic and not realistic.

India is the largest market for off-grid products but GST taxation rates for off-grid components vary from 5 percent to 28 percent which is killing retailers and small entrepreneurs entering this market, which is not feasible and competitive.

Worst, the MSME solar manufacturers are crippled due to the aftermath of demonetization and post-GST regime.

What is your take on safeguard duty as it stands now?

Our honorable PM earlier this year in Davos had mentioned how protectionism is just as bad as terrorism. While I think this is an apple and orange comparison to some extent, there is some truth in the way it adversely affects globalization and global trade at large. As a world market, our economies are affected adversely, and it is somewhat like a double-edged sword that cuts both parties involved in the trade. I appreciate the Director General of Trade’s proposal to impose a 25 percent safeguard duty in the first year of its implementation and thereon bring it down to 20 percent for the next 6 months and 15 percent in the subsequent 6 months of its proposed implementation period of 2 years. However, this ‘safeguard’ duty does not seem to safeguard the interests of project developers who have already bid hundreds of megawatts at historically low prices and the SMEs who, despite being manufacturers within the country, are deemed as importers and asked to pay the safeguard duty. So, the bottom line of this kind of protected duty is that, while it seems to make domestic manufacturers happy, it has the potential to leave others in the value chain, unhappy. In other words, the implementation of the safeguard duty appears one sided, with no guaranteed benefit for any stakeholders involved in the industry. This leads to a question: how do we find a middle ground that can benefit domestic manufacturers, IPPs and SMEs? As the debate is still fresh, there is a proposal being put in place, such as exempting SMEs from the safeguard duty. However, an in-depth participatory discussion needs to take place that involves every stakeholder so that there is a win-win situation at the end of it all.

Are you pleased with the tender and auction activity lately?

By and large, tender and auction activities in India are highly flawed at all levels of bureaucracy and the bidders themselves. Solar manufacturers do not have the financial muscle to bid directly and invariably enter into joint ventures (JVs) with non-solar, supposedly financially strong groups. But invariably, the JVs end up staging poor performance due to inherent mistakes (including the misinterpreted taxations, technical and commercial clauses). The classic example is that of the NLC tender. It is an open secret that with over 700 MW of ‘successful’ bidding by non-solar groups, there are no takers including those who have ‘taken’ the contracts. To me, Indian companies are bid-happy lots with no intrinsic capabilities to really implement the projects in time, if at all the projects see the sunshine of execution.

Are you comfortable with the pass-through option in the PPAs? Does it give you confidence to bid more and sign PPAs?

I would say, yes. The pass-through option in the PPAs is certainly a welcome move with certain fear factors due to the past experience that most of the government policies that are never implemented properly, making the developers suffer. Why I say this? Take the example of Renewable Energy Certificates (REC) based power sales through open access mode (2010). This had opened huge opportunities for the solar sector, and I was particularly very enthusiastic about this REC scheme. Alas, as usual the REC scheme nose-dived.

As the govt policies have had no success rates of implementation in India, I cannot remain confident that this pass-through scheme would trigger more signing of PPAs.