According to the renewable energy ministry, India is going to be levying a 40% customs tax on solar module imports from April 2022 to reduce the dependence on foreign equipment supplies and to provide a boost to the domestic manufacturing of equipment. According to a note published on the website, the proposal has also been approved by the finance ministry including a 25% customs duty on solar cells imports. However, there was no mention of how long will the tax apply.
The first proposal of levying tax on the imports of solar equipment was made last year after there were disruptions in the virus-related supply chain and deadly minor border battles with China, the country which is responsible for supplying almost 80% of modules of India.
India has been planning to expand its capacity of renewable power from 93 gigawatts to 450 gigawatts by the year 2030 and 175 gigawatts by 2022. According to the ministry, it is reported that about 280 gigawatts of the power capacity will come from solar.
As of the current situation, the country does not levy any custom duty on solar modules and cell imports, however, the country does have a safeguard duty for protecting its local industry which is going to expiring in July. Currently, India is levying a 14.5% of safeguard tax on solar modules and cell imports. In an attempt to meet Prime Minister Narendra Modi‘s bid of installing at least a hundred gigawatts of solar energy by 2022, the country imports majority of its solar cells and modules from China.
The main reason for this levying of taxes is that the government considers domestic solar manufacturing is an important means to reach the promised bid, however, one of the reasons is also that this step would also help in creating jobs and revive the economy which has gone down the drain due to the sudden arrival of pandemic and the following nationwide lockdown.
India’s Renewable Energy Capacity as of November 2020
According to a report, the total capacity of the installed Indian renewable energy sector had passed a 90,000 MW mark in November 2020. In November itself, an estimated 463 MW of new capacity was added in the renewable energy sector, making the cumulative renewable energy sector capacity of about 90.4 GW in India, as of November 30, 2020.
In the April-November 2020 period, a total of 3321 MW of new capacity was added in the RE segment which is less than the 1/4th of the capacity addition that was targeted for the fiscal year 2020.
A new target of 14,380 MW has been fixed by the government for the fiscal year 2020. Out of which 11,000 MW of the target was expected to come from the solar power in terms of 9000 MW coming from ground-mounted projects and 2000 MW coming from rooftop capacity and the wind segment constituting about 3000 MW of the capacity. 2,283 MW (including 1,396 MW from ground-mounted and 887 MW from the rooftop) came from the solar segment and 690 MW of new capacity came from the wind power segment and this was reported by the data of the Union Ministry of New and Renewable Energy (MNRE)
With three utility-scale tenders equipped for a capacity of 110 MW and two rooftop solar tenders for a capacity of 60MW, the tender activity was observed to be moderate in November 2020.
According to a report of Bridge to India, which is a renewable energy consulting firm, the tender issuance and auctions are seen to be slowing down every month and several amendments in the guidelines for bidding, changes in specifications of the tender, and Discoms‘ unwillingness to sign PPA have led to a kind of uncertainty in the market. However, it is interesting to note that the center has also introduced more and more measures to provide support to the developers, who have seen to be facing financial problems and challenges in securing bank limits.
The Ministry of Finance had also reported having relaxed requirements for Earnest Money Deposit (EMD) and Performance Bank Guarantee (PBG). The Finance Ministry had guided the Public Sector Undertakings (PSUs) to decrease the PBG for new tenders. The Ministry has also instructed the PSUs to not demand any kind of EMD in tenders equipped till December 31st, 2021 and as a bid response, the bidders will have to submit a bid security declaration form.
These measures were expected to reduce the cost related to PBG and EMD. The wind energy sector’s progress was seen to be declining in these recent years, so the government sought to lower the barriers and intensify the grid infrastructure and allocations of land to resolve the problem of challenges faced by the wind energy sector in the market.