PV installation costs in India are set to increase when a 40% customs duty goes into effect for solar modules from next year, along with a 25% duty on cells.
Care Ratings analysts estimate that solar power tariffs could rise by about 20% as a basic customs duty goes into effect from April 1, 2022.
Solar cell and module imports from China, Thailand, and Vietnam are currently subject to a 14.50% safeguard duty, which is due to expire on July 30. While there is some ambiguity around the extension of the safeguard duty, the Ministry of New and Renewable Energy has confirmed that the Ministry of Finance has approved the proposal to levy a 40% customs duty on solar modules, and 25% on cells, from April 2022. The solar electricity price in India dropped to an all-time low of INR 1.99 ($0.027)/kWh in a 500 MW Gujarat auction held in December.
The proposed basic customs duty structure will be applicable without grandfathering bid-out projects. Accordingly, scheduled projects that are not commissioned by March 31, 2022, would not be entitled to change-in-law compensation. This could directly impact the returns and debt-servicing capability of such projects, according to Care Ratings.
Projects scheduled for commissioning after April 1, 2022, will be eligible for change-in-law compensation, but this has always been a lengthy process. This will also increase power costs for offtakers.