To help local firms, India may deal another blow to its struggling solar sector

Un-made in India?
Un-made in India?
Image: Reuters/Amit Dave
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India’s solar power sector is staring at yet another policy intervention that could put the viability of projects in the country under question.

The Narendra Modi government is expected to impose an anti-dumping duty (ADD) on imported solar panels in order to boost sales of locally made ones. This is bound to increase the costs of setting up power plants as 89% of the solar panels used in India are imported, mostly from China, Taiwan, and Malaysia whose products are around 10% cheaper than locally made ones.

“If the anti-dumping duty is imposed—which is likely, very strongly likely—then it will make life easier for domestic producers (of solar panels),” said Amit Kumar, a partner at consulting firm PwC, who focuses on the renewables sector. An ADD of, say, 25% will allow a similar hike in prices of local products, too, bringing down the homegrown firms’ losses, Kumar added.

But that’s bad news for India’s solar power producers.

In the last few months, activity in India’s solar energy sector has stalled. The industry is struggling with rising solar panel prices and flat power demand, while, on its part, the government hasn’t held auctions for solar projects. The sector is lagging India’s target of installing 100 gigawatts (GW, or 1,000 megawatts) of plants by 2022.

The ADD is likely to make projects even less viable. Developers are already being forced to quote low tariffs to win the few available projects, risking low returns, and an increase in costs due to the duties would add even more pressure.

The backstory

In July, the India Solar Manufacturers Association (ISMA), a group of firms that make solar modules, filed a petition with the government to probe solar cell and module imports. Typically, the government takes around a year to act—impose duties if necessary—on such pleas. It may also choose to impose a provisional duty while the probe is on. In the past, such provisional duties have been brought in around seven months after a petition is filed, according to renewable energy consultancy firm Bridge to India (BTI). This year, such an intervention may already be around the corner.

“(There) is a very strong buzz in the industry that a duty announcement is about to come anytime now,” BTI said in a Nov. 15 report (pdf). “The government is under pressure about the poor state of manufacturing…If DGAD (Directorate General of Anti-Dumping & Allied Duty) and the ministry of finance are sympathetic to the case, it is certainly possible that a provisional or anti-dumping duty may be imposed imminently.”

Buyer’s drought

A hefty ADD could potentially leave power producers without enough buyers. “If the duty is very sharp, the tariff will go up very sharply and…the discoms (distribution companies) will not buy the power. Then the solar sector will come down dramatically,” said Sunil Jain, CEO of Hero Future Energies, a renewable power producer with 500 MW of installed capacity. It is unclear whether the discoms have the appetite for expensive power, PwC’s Kumar added.

As of Sept. 30, around 10,842 MW of solar projects were in the pipeline, according to BTI, and they could be jeopardised by the provisional duty or ADD. Even projects yet to be auctioned and assigned to power producers—around 2,655 MW as per BTI’s estimates—could be hit.