The safeguard duty on solar imports from China and Malaysia has produced mixed results – on one hand, market share of Indian solar module suppliers (a handful of them to be precise) has more than doubled to 30% in the two years to FY20 and on the other hand, the pace of solar power capacity addition in India has declined.
The Union government had imposed a 25% safeguard duty in July 2018 for two years (it has just been extended for another year to July 2021, at a rate of 15%). The impost has helped a few domestic module manufacturers who have increased their market shares (see chart). However, about 50% the country’s 11 giga-watt (GW) domestic solar-panel capacity and another 3 GW of cell-manufacturing facilities still remain unutilised.
Of course, China continues to be the largest source of solar cells and panels for India, with imports worth $1.3 billion in FY20. The value of such imports from China in FY18 was a massive $3.4 billion. The share of prominent Chinese module suppliers such as Trina, Hanwha, JA Solar and Canadian Solar (which has a large production base in China) in the Indian market has significantly dropped in this period.
Solar project developers prefer Chinese equipment due to lower prices. Global module prices are consistently coming down and currently ranging at $0.17/watt power (wp) – almost half the early 2018 levels. Crisil Research estimates module prices to fall further to $0.14-0.16/wp by the end of FY21, led by the oversupply and fall in global demand.
However, with the safeguard duty, the pace of solar capacity addition has decreased from 9.4 GW in FY18 to 6.5 GW and 6.6 GW in FY19 and FY20, respectively.
The government has also been considering to impose a 20% basic customs duty (BCD) on solar imports; a final call on this is yet to be taken. Solar module manufacturers have pointed that local solar factories in SEZs — which houses around 43% module making units — will not gain from the BCD, as they will also have to pay the duty under the 2005 SEZ Act if they do not get special exemption. In order to provide a level-playing field, the government is planning to charge an equalisation levy — in lieu of the incentives availed by SEZ manufacturers — on manufacturing facilities located in SEZs for transactions with domestic customers. “The industry has already submitted its inputs to the government, ministry of new and renewable energy and department of revenue are closely working on this issue,” said Saibaba Vutukuri, CEO of Vikram Solar.
In a market where technology changes very frequently, lower returns have prevented most of the local manufacturers to invest much in research and development for offering upgraded products to meet global standards. In the wake of the government taking steps to reduce import dependency from the hostile neighbor, leading solar develope ReNew Power has recently said that it will set up 2 GW solar cells and modules manufacturing facility in the country.