Govt Plans to Exempt Some Solar Projects from Import Taxes

Ministry of New & Renewable Energy in India has backed a request to exempt some projects from impending taxes on solar equipment imports after generators said the additional costs would stymie the country's transition to clean energy. "We have requested that the Ministry of Finance consider grandfathering of basic customs duty for projects bid out before March 9, 2021," the renewable energy ministry responded to emailed inquiries, indicating support for exempting these projects.

According to the National Solar Energy Federation of India, the levies, which go into effect on April 1, could jeopardize solar projects with a combined capacity of 28 gigatonnes. The industry group has asked the government to exempt projects awarded prior to March 9, last year, when the plan was officially announced, from the increased costs to keep them running.

The import taxes, which are 40% for modules and 25% for cells, are intended to encourage more domestic manufacturing of solar equipment. However, the federation estimates that they will raise power bills and slow the country's efforts to transition away from coal, which accounts for more than two-thirds of electricity generation.

"Such incremental costs will have a negative impact on the perception of the renewable energy industry, which is seen as a cost-effective alternative to conventional energy sources," the group wrote to Renewable Energy Minister Raj Kumar Singh. Some projects may not be commissioned if no tax breaks are provided, according to the report.

India intends to increase its solar capacity to 280 gigatonnes by the end of this decade, up from about 51 gigatonnes now, but its manufacturing capacity can currently only meet about half of that demand.

The government has also approved a list of companies that are permitted to supply cells and modules, with all of the companies either having or planning to build manufacturing facilities in the country. However, it is unknown when this will be implemented.

Local capacity to manufacture higher-wattage modules is limited, which means power companies may need to continue importing them even after the taxes are implemented, according to Rohit Gadre, an analyst at BloombergNEF in New Delhi. Some power producers have stocked up on modules, with imports more than doubling from the previous year in the five months through January, he said.

Over the last few years, India's solar sector has grown rapidly, with the majority of cells and modules coming from China. Domestic players are entering the market because they see an opportunity. Among the top local manufacturers are Adani Group, Tata Power Co., Vikram Solar Ltd., and Waaree Energies Ltd. Reliance Industries Ltd., owned by Mukesh Ambani, has also pledged to build solar equipment plants.