To protect domestic cell and module manufacturers, a 25% safeguard duty was announced on solar cell and module imports from China and Malaysia for the period between July 30, 2018, and July 29, 2019. The duty was set at 25% for the first year, followed by a phased down approach for the second year, with the rate reduced by 5% every six months until the duty is set to end after July 2020.

Since a majority of solar projects were already under development when the safeguard duty was announced, they came under a clause called “Change in Law.” Change in law comes into play when there is a new law or a change in the tax structure or when a new tax is introduced. To remove any ambiguity, the MNRE had stated, “Change in the rates of any taxes as mentioned in clause 5.7.2 of “Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects,” includes change in rates of taxes, duties and cess.” Thus, the solar projects that were auctioned before the imposition of the safeguard duty are eligible to get compensated for increased project costs as a result of the duty.

But solar developers say that they have been struggling to get the reimbursement for their additional expenses. This has adversely affected their business and the pace of project development in the country.

Manoj Gupta, vice president of Solar and Waste to Energy Business, said, “We have filed our case with the Karnataka regulator. However, the hearing process is going on, and the order is yet to be issued.” According to Gupta, the process of reimbursement is ‘very slow.’ “The delay in reimbursement is definitely affecting the business as the money for all the developers has come from our own equity contribution and for the continuity of the business, you always need cash or equity for your future business to grow,” he added.

Gupta further said, “No one has received any reimbursement as of now. However, we filed our case in August 2019, and we don’t know how long it will take for the decision.”

Expressing similar views, Ranjit Gupta, CEO of Azure Power, said that the delay in reimbursement had created a huge financial burden on solar developers, and lenders in the market are reluctant to fill the gap even after regulators have accepted safeguard duty as a “Change in Law” status. Therefore, this gap is being funded by equity infusion.

The debt-equity ratio has been displaced from an initial 75:25 to 65:35, to a 70% hike from the initial equity exposure to the developers.

“We should also be cognizant of the lost opportunity cost for future pipeline growth. If we take the impact of the safeguard duty for a pipeline of 10 GW, the total equity investment is ~$3.4 billion against an equity investment of ~$2 billion without the safeguard duty. This additional ~$1.4 billion equity investment is the lost opportunity cost of industry growth,” Gupta added.

Developers are of the opinion that the orders issued by the Central Electricity Regulatory Commission (CERC) on cases related to the safeguard duty aren’t clear whether the fund is a one-time payment or a tariff adjustment for the project. Instead, they are left to the off-takers’ discretion.

Developers are also disappointed with the mechanism which has been set for claim recovery. They feel that the way the mechanism has been set up has a lot of drawbacks. For instance, there’s no mention of the list of required documents to be submitted while claiming the refund, nor does it mention anything about the calculation for tariff revision.

However, developers do expect to recover safeguard duty claims over time, either through reimbursement or by increasing the tariff.

Gupta also told Mercom that there were a few favorable orders confirming safeguard duty as a “Change in Law,” which is a positive reaffirmation to the solar developers.

Earlier this year, the Maharashtra Electricity Regulatory Commission (MERC) reiterated in an order that the safeguard duty announcement was a “Change in Law” event. In a previous order, the commission had stated that the additional expenditure and other such impacts would be considered for reimbursement under “Change in Law.”

“Despite the protection under the PPA and regulatory clearance, solar developers are nowhere close to recovering the expenditure under the safeguard duty. There is no clear mechanism on its reimbursement process even after 16 months of imposition, which is a huge roadblock to the speedy recovery of funds,” Gupta added.

Asked if the company has received any reimbursement in the matter, he commented that adding to the already prolonged claim process, a lot of the petitions are still pending at different stages at various regulatory commissions and are not on priority hearing.

“We are yet to initiate the process of claim reimbursement for these projects. For example, for one of our SECI projects, the CERC petition was filed more than a year back, and we are still awaiting the final order for the project. The reconciliation and impact amount or tariff finalization post the final order will push the reimbursement timelines further,” Gupta said.

Meanwhile, the government has been taking several policy measures to support domestic solar manufacturing and curb the import of solar products.

India’s solar imports declined significantly in the first nine months of 2019. India imported solar cells and modules worth $1.6 billion (~₹115.7 billion), a drop of around 22% compared to 9M 2018. However, exports in 9M 2019 amounted to approximately $135 million (~$9.5 billion), an increase of about 46%.

Previously, Mercom reported that the government’s moves, like the safeguard duty, have not helped micro, small, and medium enterprises (MSMEs) in the solar industry.

“In a slow economy that has severe liquidity issues, delaying safeguard reimbursement is a double whammy for the solar sector. To get the sector moving, which means more jobs and investments, the government must ensure timely payments, so developers have the cash to hire and develop more projects. In the solar sector, government agencies are responsible for the current liquidity crunch and bringing the sector to a standstill, regardless if it is through delayed payment by DISCOMs, or safeguard duty reimbursement delays,” said Raj Prabhu, CEO of Mercom Capital Group.

Image credit: Alten Energías Renovables