A Ray of Sunshine: Solar Industry Gets Fresh Push From PLI Scheme

India is a signatory to the Paris Agreement under the United Nations Framework Convention on Climate Change.

As part of its Nationally Determined Contribution (NDC), India has three quantitative climate change goals viz. reduction in the emissions intensity of Gross Domestic Product (GDP) by 33 to 35 percent by 2030 from 2005 level, achieving about 40 percent cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030 and creating an additional carbon sink of 2.5 to 3 billion tonnes of carbon dioxide equivalent through additional forest and tree cover by 2030.

While India seems to be progressing well to meet the above commitments, the need to ensure that reliance on renewable sources of energy has become more important than ever. Indian Government has been undertaking various initiatives for development of non-conventional sources of energy especially electricity.

One such initiative was National Solar Mission started back in the year 2010, with a target of generating 20 GW of electricity through solar energy by 2022 and establish India as a global leader in solar energy.

The target of 20 GW was later increased to 100 GW. India currently produces around 39 GW of electricity through solar energy (as on February 2021).

India also spear-headed the formation of International Solar Alliance (ISA) initiative in 2015 along side France. Since then, more than 121 countries have become part of the alliance to collectively address key common challenges to the scaling up of solar energy in line with their needs.

Import levies introduced by Government of India to incentivise domestic production

Since 2005, solar cells and modules were exempted from levy of Basis customs duty. But the growth of solar cells and modules manufacturing capacity in China, Taiwan and Malaysia coincided with increasing demand of the same in India led to sharp rise in imports of solar cells and modules in India.

Government of India introduced Safeguard Duty (‘SGD’) as below on imports of solar cells and modules (including imports from China, Thailand and Vietnam):

The SGD was levied with a view to promote domestic manufacturing and curb imports but domestic manufacturers were not able to benefit from the imposition of these additional duties as the duration was too short (3 years).

Also, most of the solar power projects importing modules got a reimbursement for the levy through a “change in law” condition of PPAs.

As a result, an uptick can be observed in the volume of solar cells imported into India. However, due to a steady decline in the price of solar cells, the impact of SGD has been nullified and the value of imports have taken a downturn.

In order to discourage imports further, the Indian Government has proposed levy of Basic Custom Duties of 40% and 25% BCD on the import of solar modules and solar cells respectively starting from 1 April 2022.

It may be noted that as these products are a part of the Information Technology Agreement,

Production Linked Incentive for Solar PV sector – Need and Overview

The solar power tariffs continue to hit new lows in the reverse bids conducted and have been on steady decline. This has put pressure on reducing the setup and production cost.

Since, about 60% to 80% of the cost of setting up a solar power generation plant can be attributed to solar PV cells, there is a need to reduce the procurement cost of the same.

The Government, as a part of ‘Atmanirbhar Bharat’ initiative, has proposed the implementation of the Production Linked Incentive (‘PLI’) Scheme, ‘National Programme on High Efficiency Solar PV (Photo Voltaic) Modules’ with an outlay of Rs 4,500 crores.

Introduction of the PLI scheme would provide the needed fillip to the production capacity expansion needed to meet the ambitious target of solar electricity generation set by Indian Government.

Present Installed Solar PV Manufacturing capacity in India is as follows:

Primary considerations for selection of beneficiaries under the PLI scheme is the extent of vertical integration and the manufacturing capacity. The selection process would involve a scoring mechanism and ranking would be provided basis the scores.

The total pool of Rs 4,500 crores would be divided among various bidders basis the ranking provided. Higher incentive allocation would be provided to the selected bidders with higher rank.

Impetus is being provided towards creating the entire value chain required for manufacturing of solar modules right from polysilicon to modules by providing higher scores based on higher value addition for the modules in India as also providing local value addition as one of the parameters for incentive calculation. Further, there is also a focus on local sourcing of raw material.

The eligible incentive would be calculated on the basis of sales volume, efficiency of the module and local value addition. The efficiency of the module would be calculated through a performance matrix.

The manufacturer selected under the scheme would be eligible for receiving the incentive over a period of five years from commissioning.

The Government expects additional 10 GW capacity of integrated solar PV manufacturing plants with an investment of around Rs 17,200 crore under the said scheme.

It is expected to augment the supply of solar modules and accelerate India towards meeting the target of electricity generation by solar power as also keeping the cost of power generation at minimal levels.

To complement the introduction of PLI, the Government has taken measures like BCD imposition on solar cells, anti-dumping and countervailing duties on other raw materials (like Ethylene Vinyl Acetate sheets, glass, etc) on imports from various countries like China, Malaysia, Thailand, etc.

These measures could also aid a long way in creation of manufacturing capacities in India for overall value chain for manufacturing of solar modules and not mere assembly units importing raw materials.

Appointing the Empowered Group of Secretaries (‘EGoS’) for monitoring of the scheme is also another positive step proposed in the scheme which would be ensure monitoring and timely implementation of the scheme.

Other challenges faced by the Industry

Inverted duty structure under GST
Most of the input goods and input services fall under 18% GST rate bracket, while, on the other hand, Solar Modules are taxed at 5%. This difference in the tax rate leads to accumulation of input tax credit on input, inputs services and capital goods.

The refund of the accumulated GST credit is available merely for the inputs and the credit on account of capital goods and input services is accumulated.

To circumvent the said hindrance, taxpayers resolved to establishing their units in the Special Economic Zones (‘SEZs’). However, with the proposed introduction of BCD the incentive of setting up a unit in SEZ has been diluted substantially.

With this renewed thrust on making India self-reliant, the government is focussing on building a plethora of lucrative incentives to increase the manufacturing capacity to cater to domestic as well as international market and for sure it would help give Indian manufacturers focus more than ever on the energy sector.

Source: ET CONTRIBUTORS