India mulls exempting some projects from solar import taxes

India’s renewable energy ministry has backed a demand to shield some projects from impending taxes on solar equipment imports, after generators said the added costs will slow the nation’s shift to clean energy.

“We have requested Ministry of Finance to consider grandfathering of basic customs duty for projects bid out before March 9, 2021,” the renewable energy ministry said in response to emailed queries, indicating support for exempting these projects. 

The levies, effective from April 1, could jeopardize solar projects with a combined capacity of 28 gigawatts, according to the National Solar Energy Federation of India. The industry group has asked the government to shield projects awarded before March 9 last year, when the plan was officially announced, from the higher costs to keep them viable. 

The import taxes—40% for modules and 25% for cells—are aimed at encouraging greater domestic manufacturing of solar equipment. The federation, however, estimates they will add to power bills and slow the country’s efforts to move away from coal, which accounts for more than two-thirds of electricity generation.

“Such incremental costs will have an adverse impact on the perception of the renewable energy industry, which is seen as a cost-effective alternative to conventional sources of energy,” the group said in a letter to Renewable Energy Minister Raj Kumar Singh. Without any tax relief, some projects might not get commissioned, it said.

India plans to expand its solar capacity to 280 gigawatts by the end of this decade from about 51 gigawatts now, but its manufacturing capacity can only currently meet around half of that requirement. The government has also approved a list of companies that are allowed to supply cells and modules, with all of the firms either having manufacturing facilities in the country or planning to build them. However, it’s not clear when this will be implemented.

Local capacity to make higher-wattage modules is low, meaning power companies may need to keep importing them, even after the taxes take effect, said Rohit Gadre, an analyst at BloombergNEF in New Delhi. Some power producers have stockpiled modules, with imports in the five months through January doubling from the year-earlier period, he said.  

India’s solar sector has grown rapidly over the past few years, with most cells and modules coming from China. Sensing the opportunity, domestic players are jumping into the market. 

Adani Group, Tata Power Co., Vikram Solar Ltd. and Waaree Energies Ltd. are among the top local manufacturers. Mukesh Ambani’s Reliance Industries Ltd. has also pledged to build solar equipment plants.