In a letter to Union Power Minister R.K. Singh, the National Solar Energy Federation of India (NSEFI) has conveyed their worry about the impact of Basic Customs Duty (BCD) on projects awarded before March 1, 2021.
NSEFI points out that many projects awarded before the announcement to impose BCD were scheduled to achieve a commercial operation date before the commencement of BCD. NSEFI claims that the COVID-19 pandemic and the delay due to the order of the Supreme Court on the ‘Great Indian Bustard’ case has pushed the commercial operation date of many of these projects beyond March 31, 2022.
According to NSEFI, 15 GW of solar projects will be adversely impacted by the imposition of BCD unless grandfathered. Additionally, NSEFI argues that the incremental cost under the change in law compensation will burden the end consumer with at least ₹0.30 (~$0.0040) /kWh and up to ₹0.50 (~$0.0066)/kWh with the use of imported cells and modules for these specific projects.
Such incremental costs will hurt the perception of the renewable energy industry, which is seen as a cost-effective alternative to conventional sources of energy.
NSEFI claims developers will be forced to raise short-term working capital or additional equity at a much higher interest rate to meet this additional cost, leading to economic nonviability.
There is also a possibility that the inflated tariff impacted by the BCD will be unattractive for distribution companies (DISCOMs). This could lead to the risk of termination of existing PPA or rejection of the proposal with increased tariff, as it will directly impact the overall power purchase cost.
MNRE has been preparing for imposing the BCD since Budget 2020 was announced when the duty was proposed. In September 2020, MNRE issued a notification asking solar PV manufacturers and associations to provide the list of machinery and capital goods required for inclusion in List 19 for exemption from BCD.
In March 2021, the Ministry of New and Renewable Energy had announced the BCD on imported solar cells and modules starting April 1, 2022. The BCD on solar modules with HSN Code 85414012 will be 40%, and solar cells (85414011) are 25%. The announcement to impose BCD on solar cells and modules did not allow grandfathering of projects already auctioned.