New Delhi: Renewable the decision of the Ministry of Energy to consider basic customs duty (DCB) on the import of solar cells and modules as a law change event and allowing its transmission could raise the tariff by 50-70 paise per unit of electricity for eligible projects, research agency CRISIS said Monday.
According to the official press release, the increased tariff will remain below the average cost of purchasing electricity for discoms in India.
“However, this announcement provides partial relief for up to 6 GW of solar projects are already seeing high project costs as they are about to make import modules from this exercise,” he added.
The imposition of 40% BCD on importing modules and 25% on importing cells starting April 1, 2022 has increased the cost of the project by around 25%, driving down already low returns for developers , added CRISIL.
“Based on our discussions with industry players, we estimate that for 50-60% of the 17 GW capacity, the modules can be procured domestically, which keeps them outside the scope of the For another 10-15% of this capacity, modules were imported before BCD was imposed,” said Manish Gupta, Senior Director of CRISIL Ratings.
He added that treating BCD as a law change event will benefit remaining capacity up to 6 GW, making the projects economically viable.
These projects were offered at rates ranging from Rs 1.99 per unit to Rs 2.92 per unit, with only about 20 percent of the projects being priced above Rs 2.55 per unit, thus the increase of the tariff pass-through is expected to be in the range of Rs 3 per unit to Rs 3.2 per unit, which keeps them competitive with the average cost of supplying electricity to discoms in India.
“The tariff pass-through represents only partial relief, as returns from these projects will remain lower than expected at the time of the tender, with module prices having increased by around 50% since then. This contrasts with industry expectations of lower prices, in line with past trends, and was not budgeted in the tariffs during the tender,” said Ankit Hakhu, Director of CRISIL Ratings .
The imposition of the BCD was likely to impact approximately 17 GW of projects tendered between October 1, 2019 and March 9, 20216. These projects were likely to acquire modules after April 1, 2022 and would not have been able to factor customs duties into their bid prices.