Is the Honeymoon Period over for India’s Solar Project Developers?

The New Year does not seem to bring new hopes for solar project developers in India. The developer community is a worried lot who do not know how to plan and proceed for future project development given series of attacks by domestic solar cell manufacturers over dumping of low cost goods from international manufacturing hubs (especially China and Malaysia).

Indeed, the Directorate General of Safeguards Customs and Central Excise via a preliminary findings report dated 5 January 2018, has recommended a provisional Safeguard Duty of 70 percent to be imposed on imports of solar cells (whether or not assembled in modules or panels) from all countries including China and Malaysia. The Safeguard Duty is proposed to be levied for a period of 200 days — minimum period of time required to protect the interests of domestic producers.

This finding follows an application made by the Indian Solar Manufacturers Association (ISMA) on behalf of five Indian producers. A public hearing shall now be conducted followed by detailed investigation of documents submitted by domestic producers, and subsequently the final findings shall be passed on the Ministry of Finance for approval, basis which the said duty can be levied on fresh imports.  

Simultaneously the Directorate General of Anti-Dumping and Allied Duties is investigating a similar case of applicability of anti-dumping duty on “Solar Cells whether or not assembled partially or fully in modules or Panels or on glass or some other suitable substrates” originating in or exported from China PR, Taiwan and Malaysia. Note that the DGAD is governed by the Ministry of Commerce and Industry and any recommendation shall therefore require its final approval. Again, the petition in this case has been filled in by the ISMA alleging injury to the domestic producers. Whether the said ministries act in tandem or impose several independent duties as per their jurisdiction is hard to predict.

The preliminary findings report states that while the import volumes of solar cells increased at 643 percent in the last three-year period (imports equivalent to 1,275 MW in 2014-15 versus 9,474 MW in 2017-18), the corresponding domestic manufacturing only increased at half the rate (from 246 MW in 2014-15 to 1,164 MW in 2017-18). The overall growth rate of solar cells import relative to domestic production has risen from 519 percent in 2014-15 to 814 percent in 2017-18.

As per the findings, Indian producers could not have predicted the sudden increase in imports from China during the last couple of years. During the said time period, i.e. between 2016 and 2017, “China started targeting the Indian market more vigorously as compared to developed countries/markets like EU and USA, etc.” and such an event could not have been foreseen.

During the first half (H1) of 2016, Chinese exports to India were 18.51 percent of its total exports, which increased up to 38.77 percent of its total exports in H12017. In contrast, as a result of trade restrictions imposed by the U.S., the Chinese exports to developed countries shrank from 30.65 percent (H12016) to 5 percent (H12017) of its total exports. Capacity utilization of domestic producers fell from 60 percent in 2014-15 to 51 percent in 2017-18, whereas their inventory level has increased four times. The report also establishes that increase in imports has been achieved on the basis of serious price undercutting by the international suppliers.

The proposed safeguard duty is also applicable on solar cells manufactured inside Special Economic Zones (SEZ) in India for use in the domestic market. Three of the five domestic producers, on whose behalf the application was filed by ISMA, are located inside SEZ and thus would be subjected to levy of safeguard duty. The report thus notes that this imposition would in effect nullify the duty levy and therefore remedy in the form of duty exemption can be explored for units located inside SEZ. However, grant of such remedy is beyond the purview of the Directorate General and ISMA would have to reach out to the Ministry of Finance directly.

If the findings of this report are found satisfactory and in addition a case for levy of anti-dumping duty is established, then the economics of solar power generation in India will be impacted significantly. Increase in project costs may dent the growth of new project capacity and the developer community may have to look for other cost and production efficiencies to tide over the looming difficult times ahead.

Lead image credit: CC0 Creative Commons | Pixabay

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