While anti-dumping measures are evaluated in India (see insight India anti-dumping duties petition adds on to PV module procurement woes) with the verdict expected by the second half of 2018, on 19 December 2017, India notified the WTO's Committee on Safeguards of a safeguard investigation on solar cells, whether or not assembled in modules or panels. In early January, the Directorate General of Safeguards (DGS) proposed a Provisional Safeguard Duty (PSD) of 70% on PV cells and modules from China and Malaysia, and possibly also Taiwan and Singapore, for 200 days. No duty has been proposed for imports from other countries, as the solar imports from these countries are insignificant. The PSD has been proposed as an immediate measure to protect the domestic PV manufacturing industry from serious injury. This proposal has come after five Indian manufacturers filed an application on 5 December 2017 with the DGS. The applicants are Adani Group, Indosolar, Jupiter Solar, Helios Photovoltaic and Websol Energy. The suggested PSD is subject to further investigation, finance ministry approval and public hearing.
Several public instances and market participants oppose the PSD. In January, Madras High Court put a stay order on the PSD recommendations from DGS, after Shapoorji Pallonji Group, filed a petition stating that they never got a chance to respond to the initial enquiry made by DGS. This stay order ensures that any duty will at least not be applied on imports prior to 2 February 2018.
Meanwhile, the Indian government is looking at how to reduce the rate of a potential PSD. For this investigation, the government has formed a standing committee comprising of secretaries from Ministry of Commerce, Ministry of Finance, Ministry of New and Renewable Energy (MNRE) and Prime Minister Office. The date of the final meeting is yet to scheduled, but is expected to be in the last week of February or first week of March. This committee would be in power to set the final PSD rate, and possibly lowering it from the proposed 70%. In parallel, MNRE has been collecting data in regard to PV projects that had been tendered and awarded by 31 January 2018, so that these projects would be exempted from the duty. If this approach fails, then MNRE says that it would look at how to recalibrate the tariff of these projects.
Adding on to the complexity of the safeguard duty, Indian companies that operate in Special Economic Zones (SEZ), including many of the manufacturers that filed the PSD petition, would possibly face the same PSD rate as imports from China and Malaysia. Manufacturers in SEZs are exempt from taxes and import duties, but the products are considered imports when sold to India. The companies could be exempt from PSD for cells used in production, but PSD could apply as soon as the end product is sold in India. If SEZs are considered significant exporters to India, PSD may apply also to all modules and cells from these zones.
Safeguard duty has short-term impact
If MNRE does not succeed in creating an exception for already awarded PV projects, the proposed PSD would damage PV imports from affected countries in the second and third quarter of 2018, as costs would be prohibitive. The total project cost may go up by 30% to 40%. Instead, we would expect an upswing in imports from non-affected countries in South East Asia, depending on the demand for such modules from Europe. Currently, Chinese manufacturers hold off on signing new orders to India, while waiting for more clarity on the PSD and during which period it would apply. Given the short term measure that the PSD implies, there will not be any long-term impact from this duty. The long-term impact of duties will depend on the ADD investigation, which is projected to conclude on 21 July 2018. Until then, foreign module suppliers will avoid signing new supply contracts, and developers will avoid signing PPAs without a “Change in Law” clause to anticipate tariff adjustments.
Limits to local manufacturing
Local cell manufacturing capacity of around 3 GW per year would not be sufficient to fill projected demand during the PSD period of 200 days, or future demand if ADD rates set back all imports. Local cells are also made with conventional technology such as ‘multicrystalline Aluminum Back Surface Field (ABSF)’, at a moment when demand is increasing for Passivated Emitter Rear Cell (PERC) technology, which only a few Indian manufacturers can supply.
As of the end of last year 7.5% customs duty apply to all PV modules
Outside the ADD and PSD discussions, PV developers have to face the 7.5% customs duty that applies to PV modules as of the end of 2017. The Central Board of Excise and Customs (CBEC) has re-classified PV modules as “electric motors and generators,” under custom code 8501, which attracts 7.5% customs duty. Even though the decision was taken up during second half of 2016, it was finally implemented during September 2017. Earlier PV modules were exempted from customs duty because their classification under customs code 8541, as electrical equipment. After Chennai port decided to classify modules as 8501 and demand 7.5% duty, other ports followed, which led to that module shipment containers piled up in various ports across India. After the intervention of MNRE, these containers are now being released, to cover PV installations in the first quarter 2018. The importers cannot avoid the duty, but instead of paying upfront, they can leave a 7.5% bank guarantee, or in some ports even sign a 7.5% bond. In contrast to the ADD and PSD duties, there is no customs duty exemption for projects with existing PPAs, but the additional cost of the duty will be taken by the developers. This will reflect in bid prices in 2018, and give some opportunities for local suppliers, no matter the outcome of the ADD and PSD petitions.