The Ministry of New and Renewable Energy (MNRE)’s move to allow solar import duty pass-through under Change in Law will benefit up to 6 GW of already bid-out PV projects, according to a new report by Crisil Ratings.
Tariffs for these projects will increase by 50-70 paise ($0.0062-$0.0086)/kWh as the developers are allowed to pass on the impact of basic customs duty on cells and modules under ‘change-in-law’. The increased tariff will remain well below the average power purchase cost for discoms in India, according to the report.
The BCD imposition was likely to impact 17 GW of PV projects bid between October 1, 2019, and March 9, 2021. These projects were likely to procure modules post April 1, 2022, and could not have factored the customs duty in their bid tariffs.
“Based on our discussions with industry players, we estimate that for 50-60% of the 17 GW capacity, modules may be procured domestically, keeping it out of the ambit of duty. For another 10-15% of such capacity, modules were imported before the BCD imposition. Hence treating BCD as a ‘change in law’ event will benefit the remaining capacity of up to 6 GW, making the projects economically viable,” said Manish Gupta, senior director at Crisil Ratings.
These projects were bid at tariffs ranging from INR 1.99/kWh to INR 2.92/kWh, with only 20% of the projects being at a tariff of more than INR 2.55/kWh. Thus the increased tariff post-pass-through is expected to be in the range of INR 3-3.2/kWh, keeping them cost-competitive compared to the average power procurement cost for discoms in India.
However, duty pass-through brings partial relief for the project developers already seeing elevated module costs as they are set to import modules from this fiscal.
“Tariff pass-through remains only a partial relief as returns for these projects will remain weaker than envisaged at the time of bidding, as module prices have risen by 50% since then. This is in contrast to the industry expectation of softening prices, in line with past trends, and was not budgeted in tariffs while bidding,” said Ankit Hakhu, director at Crisil Ratings.
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