Tariff and GST Uncertainty Are Only a Temporary Drag on India’s Solar Market

September 22, 2017


Tax confusion, uncertainty about anti-dumping tariffs, and stagnant demand are all affecting India’s solar sector, which witnessed relatively smooth growth in the last three-to-four years until the hiccup that began late last year.

This was the sentiment expressed by panellists at the session ‘Indian Solar Market-The Path Forward’ hosted by Mercom India at the Renewable Energy India Expo, Greater Noida, on September 20, 2017. The session was moderated by Priya Sanjay, Managing Director of Mercom Communications India.

The panel discussion touched on all the major issues affecting India’s solar growth story and included all types of stakeholders – from lenders and developers to manufacturers and policymakers.

Most of the panellists remained optimistic about the future of the industry and considered the recent slowdown nothing more than a temporary blip. One of the reasons for their optimism was attributed to a recent auction in Gujarat. Despite swimming in a sea of uncertainty, the auction received significantly lower tariff bids, thus demonstrating that any fear about the industry is unfounded, according to Mr. Ruchin Gupta from the Ministry of New and Renewable Energy (MNRE).

Another sentiment that was strongly shared among the participants was that the margin for error is very thin due to low tariffs.

Every project needs to be assessed based on its own merits and the fact that one project has a particular tariff should neither influence nor determine the tariff for another project, as conditions and challenges are different for each project. It is advisable to determine tariffs on a project-by-project basis so that any uncertainties can be absorbed, said Mr. Naveen Khandelwal.

Installation of new solar capacity has declined in recent months, but this was expected as impressive growth cannot be achieved all the time. Despite the rise in module prices seen in recent months, tariffs seem to have stabilised.

The new Goods and Services Tax (GST) has created some uncertainty in the market relating to the GST rate for solar components. Many experts are unsure if solar components will be taxed at 5 percent, but the market has yet to get clarity. The ministry is aware of the confusion, but has taken no proactive steps to clarify the rates.

The panellists also addressed India’s manufacturing sector. “There are some lingering questions that need to be answered as we move forward in our growth story,” said Bernhard Rack of Adani Mundra Solar. Namely, how will India manufacturers compete with China when they are not innovating? Under normal conditions, Indian manufacturers can compete with Chinese products. However, developers can source modules from anywhere and lenders are not picky about where they come from. In this respect, India is lagging, as it lacks a robust structural framework that will help the domestic manufacturing industry in the medium-to-long term, added Rack.

Session participants also highlighted the importance of project quality. Under normal circumstances, when the tariff is reduced module prices should also be lowered for the sustainability of the project. If it doesn’t happen, the project then becomes unsustainable or the project quality suffers.

The success of rooftop solar will play an important role in achieving the 100 GW target set by the government. Although the sector has seen an improvement, a significant amount of work still needs to be done. In the rooftop sector, commercial and industrial segments have matured and government buildings have seen a lot of growth. But, these can only be helpful in the short-to-medium term. For long-term growth, the residential rooftop sector needs to pick up.

One of the biggest challenges facing residential rooftop solar is a lack of clear communication and visibility. People lack sufficient knowledge and understating of rooftop solar and that is creating tepid customer response. Low‑quality rooftop projects also don’t do any good for the sector. Since long-term success will ultimately be driven by customers, it is imperative to focus on quality products and execution for long term growth.

All panellists agreed that, apart from the recent slowdown and challenges, the power consumption of Indian households will only increase in the future and cheaper alternative generation sources with a lower social cost will be the preferred choice for many customers. Almost all new capacity will be renewable in general and solar in particular, according to the panellists.

“Most panellists put on a brave face and tried to downplay the current challenges facing the industry in front of government regulators. But, in private, we hear just about every day the challenges the industry faces. Even with the massive growth we’ve seen, it is frustrating to see how companies are tiptoeing around government regulators instead of having honest conversations about what needs to be done to fix the issues and lay the ground work for long-term growth,” said Ms. Priya Sanjay of Mercom.