Long-Term Basic Customs Duty Crucial for India’s Solar Sector: Roundtable
The experts discussed a range of issues affecting the India solar sector amid the ongoing pandemic
Mercom India held a webinar on August 4, 2020, to discuss the pressing issues and opportunities in the Indian renewable energy sector amid the COVID-19 pandemic. The roundtable discussed the effects of the COVID-19 pandemic on the solar sector and ways to navigate through this period.
The panelists included Chintan Shah, Technical Director at International Renewable Energy Development Agency (IREDA), Avinash Hiranandani, Managing Director at RenewSys India, K N Sreevatsa, Country Head at Fimer, and Mayank Bansal, President, Strategy, and Operations, ReNew Power. The session was moderated by Mercom India’s Managing Director, Priya Sanjay.
Important takeaways from the discussion:
Situation on the Ground
Things have changed drastically in the past few months. In India, various states have imposed lockdown after the national lockdown failed to arrest the spread of the deadly virus.
Speaking on the impact of COVID-19 pandemic on the solar sector, IREDA’s Chintan Shah, said, “The pandemic has impacted the solar sector in a big way, and the projects under construction have been impacted the most. The Reserve Bank of India had issued a moratorium, which will be over by September. The credit growth in the first quarter has been bad, and it is likely to increase as we enter the third and the fourth quarter. We have started getting proposals, which is a good sign for the future.”
Echoing similar sentiments, ReNew’s Mayank Bansal, said, “There’s not much activity on the ground, but things have started to move forward in the last 15-20 days. Labor availability is still a big challenge, and the entire supply chain has not picked up. The MNRE is providing all the support, and an extension of six months is required to get things in order. We are expecting a longer extension for projects as that will give us the time to get the house in order.”
Safeguard Duty and BCD
Recently, the Department of Revenue under the Ministry of Finance (MoF) issued a notification imposing safeguard duty on the import of solar cells and modules to India for another year starting July 30, 2020. The ministry announced a duty of 14.90% from July 30, 2020, to January 29, 2021, and 14.50% from January 30, 2021, to July 29, 2021, for all solar cells and modules imported from the China PR, Thailand, and Vietnam.
“The solar sector has great potential in the country with the target to achieve 450 GW by 2030. The sector requires long-term visibility to compete with China and other countries. Right now, the government needs to give protection to domestic manufacturers who are at a disadvantage of about 20-25% as compared to their Chinese counterparts who enjoy several incentives and subsidies in their countries,” noted Bansal.
The likely imposition of the basic customs duty (BCD) was also discussed, and the panelists were of the view that the imposition of BCD was a necessary step to encourage the domestic manufacturing sector.
“The imposition of 10% BCD is too little and too less in the long-term. There is a big demand for solar modules, and we should make them in the country. We need to do our bit to compete with the Chinese modules, and that can only happen when an ecosystem is in place. Once that is done, we won’t need the support to compete with the best,” noted Avinash Hiranandani.
“Currently, we pay a 10% BCD on components imported for inverter manufacturing. But when the full inverter is imported to India, which is built outside, against MNRE certificate, everyone can avail a benefit of 5%. This way, manufacturing in India is at a big disadvantage. I would welcome any duties on inverters as it would create a level playing field,” added Sreevatsa.
We need to build manufacturing capabilities in our country because the projects must be maintained for 25 years. The project running cost must be lowered. It is high time that the government came out in support of the manufacturing industry. It has already been delayed, he further explained.
“These measures cannot be for eternity, and it’s a fact that we can’t compete with China right now. We look at BCD as a support to bridge the gap in the next 5-7 years. It is one of the main pillars for our foray into manufacturing. As a developer, I feel that we have benefitted from modules imported from China because the Chinese have been very competitive. We would like the same to happen in India. Eventually, we should do this without any support, and I’m sure that we are capable of competing with the Chinese,” noted Bansal.
BCD on Special Economic Zones
Speaking on the imposition of BCD on exports from Special Economic Zones (SEZs), Hiranandani said, “Nearly -50-60% of the total manufacturing capacity is through SEZs, and if the BCD is imposed on exports from SEZs, it will lead to the closure of many manufacturing units in the SEZs. If BCD is levied, it will put SEZs in a difficult position, and this would have a big impact on the domestic manufacturing capacity. SEZs must be taken care of for the wholesome growth of the sector.”
“Most of the production capacity is in the SEZs, and the imposition of BCD on exports will affect the manufacturing units in the SEZs. In the near term, if you see capacity addition in the next 12-15 months, it will happen through existing projects, and all the players would like to leverage some of the existing facilities. We need to find a different mechanism to provide support. If your business rationale is export, then you would like to be SEZs, and you can tap into the domestic market and future markets. This would make the business case much stronger,” explained Bansal.
Boosting the Manufacturing Sector
Stressing the need to provide an impetus to the domestic manufacturing sector, the panelists were of the view that India is moving in the right direction, and it is only a matter of time before India catches up with manufacturing giants like China.
“Module manufacturing and cell manufacturing is picking up in India, and with programs like KUSUM, we are providing support and financing to domestic manufacturers. The Punjab National Bank, the State Bank of India, and Canara Bank have also been providing financing to the manufacturing sector. If the proposal is sound, we are ready to finance the projects,” noted Shah.
According to Mercom India Research, India currently has only about 16 domestic solar cell manufacturers with a cumulative operating production capacity of approximately 2 GW. And the country has approximately 8 GW of operating module manufacturing capacity.
“The government is already helping us, and the tariff barriers should be in place for ten years. Any policy should remain in place for a longer time, as that brings investment to the sector. With new technologies coming up every day, it becomes imperative to catch up with the developments to remain competitive. We don’t produce half-cut panels and wafers, which are gaining popularity in the solar market. India would need funds to upgrade technologies. A technology upgradation fund is the need of the hour, and to compete with the world, we need to keep pace with the evolving technologies,” opined Hiranandani.
Speaking on the prospects, Bansal said, “We are bullish about the future. We expect that the market will expand, and the module prices will come down. This is fundamental for any growth. The growth will be based on improvements in technology and a huge uptake in demand. We currently have 5.5 GW of projects in operation and 10 GW of projects in the pipeline. We plan to double the portfolio in the next 2-3 years. We would like to increase our manufacturing capacity to 5 GW in the next five years.”
“We are investing in new technologies, and battery storage is going to be the next big thing. We recently launched a single block 5 MW inverter in India, and we are planning to establish a manufacturing facility for 5 MW inverters in India. I think a holistic approach is required for the overall growth of the market,” added Sreevatsa.
“We are planning to expand our ethyl vinyl acetate (EVA) and backsheet production. We are planning to increase our EVA capacity to 2.5 GW and our module capacity to 2 GW. We are also evaluating the prospects of a 500 MW cell line facility, but without support, it is not likely to happen. We are bullish about the overall growth of the market,” added Hiranandani.
On the whole, while the going is tough, the solar industry is looking forward to better days ahead.
You can watch the webinar here.