Safeguard duty imposition impacting solar tariffs in India

Abstract

By 2022, Government of India targets to install 175 GW of renewable energy in the country among which solar energy shall contribute 100 GW. This paper, discusses the impact of the important decision taken by Government of India with regards to the levy of Safeguard Duty (SGD) on solar photovoltaic panels and cells imported into the country. This paper analyses the impact on the capital cost of the solar projects on account of the imposition of SGD and the mechanism to be adopted under the Change in Law provision under the Power Purchase Agreements (PPA’s) for restoring the Solar Power Developers (SPD’s) to the same economic position as prior to imposition of SGD. A methodology has been proposed to derive a normative tariff pass-through based on parameters considered in CERC RE Tariff Order, which can be made applicable to all projects which are reeling under the impact of SGD to recover the impact on the capital cost of the project. Further, an analysis to determine the required pass through in tariff on account of SGD based on normative project cost values which can be made applicable to all affected solar projects has been carried out. Upon consideration of the different project parameters and cost structures for various projects and an early resolution of the issue to reduce the burden on the SPD’s, it is deduced that pass through in tariff based on normative project cost values remains the best option for all stakeholders concerned. This work will be particularly applicable for projects which were already bid out prior to the date of SGD initiation, and were under construction or where construction was about to commence, and hence would be impacted by applicable SGD. Since the impact of imposition of SGD is still being analyzed, this may be one of the first papers and result in setting up of precedent for future papers & numerous case studies revolving around a specific solar power project.