On 30 July 2018, India's Ministry of Finance (Department of Revenue) implemented the 25% duty that had been recommended by the Directorate General of Trade Remedies (DGTR). The 25% duty on cells and modules imported from China, Malaysia and developed countries applies with immediate effect. Imports from other developing countries as defined in a specific document are exempt from duties. The tariff will be reduced to 20% on 30 July, 2019, and finally set at 15% from 30 January, 2020 to 29 July, 2020. After that, the tariff will be removed.
The immediate impact of the measure is a near-term aggravation of the current global oversupply of PV modules, an increase of PV module prices in India, and a brief halt in Indian PV project development as developers adjust procurement strategies. New tenders also risk being delayed or cancelled. At the moment, it is not even clear whether all Indian manufacturers will benefit from the trade measure, as many operate out of Special Economic Zones, for which duties are applicable under current conditions. Depending on final clarifications on these matters, we will update the forecast for India PV additions.
India imposes 25% safeguard duty on cells and modules imported from China, Malaysia and developed countries, counteracting the 30% price drop in the Indian market in 2018.
Total year-end manufacturing capacity of cells in exempt locations adds up to 9.5 GW. In addition, 2.5 GW of cell manufacturing capacity is located in Special Economic Zones in India, to which duties apply under current conditions, but the issue requires further clarity from the government. Given the two-year limit on the duty, IHS Markit does not expect major additions of cell-manufacturing.
For on-going projects, developers pause to negotiate supply contracts, before resuming. As the additional cost of the duties will be passed through to the existing PPAs, most projects are likely to go ahead as planned.
Resulting higher bid prices in PV tenders risk delaying new procurement, as demonstrated by SECI’s cancellation of 2.6 GW of recently awarded capacity because of price concerns.
IHS Markit estimates that close to 7 GW-dc of PV systems were installed in the first half of 2018. Installations in the second half of the year will hinge on the amount of modules secured into India in June and July, combined with the ability of developers to secure sufficiently low prices for new modules in the coming months.
IHS Markit Insight
Awarded projects keep going, but new tenders risk delays. Through this safeguard duty, India is not only creating a price control that would improve Indian manufacturers' competitiveness in the local market. By raising module prices, the measure also takes the air out of India's trend of declining bids in PV tenders, which has made PV one of the cheaper sources of new electricity in the country. The measure therefore risks delaying new tenders as the off-takers seek to attain the lowest possible bids. Such delays would mainly impact installations in late 2019 and 2020. Projects that have already been awarded or submitted bids would according to provisions from April 2018 be shielded from the safeguard measure via pass-through regulation that would raise the PPA rates to offset any new duties. However, on 3 August, SECI demonstrated its unwillingness to pay higher tariffs by cancelling 2.4 GW of 3 GW that had been awarded in July, on the basis that bids of INR 2.64/kWh (USD 0.039) and INR 2.71/kWh (USD 0.040) were too high. Only the 0.6 GW awarded at INR 2.44/kWh (USD 0.036) were kept. Such cancellations raise the uncertainty for bidders. Even for awarded projects, the Discoms may try to avoid any pass-through, by pointing to project delays or other incompliance from developers. Most of the developers working on awarded projects are still projected to continue installations, only with a short pause in August to redefine procurement strategies. The pass-through provisions, combined with this summer's rapid decline in module prices, enable the continued installation of PV systems in India in 2018 and 2019.
No secure winners among manufacturers. Chinese export data show that half of the close to 7 GW of modules that were installed in India in the first half of 2018 came from China. July export data has not yet been released, but we expect a strong increase of shipments from China as a result of the current global oversupply. Prices for Chinese modules in India were reported at around USD 0.25/W before the safeguard duties came into effect. That is a 30% drop from the end of 2017. Safeguard duties raise prices to USD 0.31/W, which is still 14% lower than eight months ago. The question for Chinese module suppliers is whether that price will remain competitive against India and South East Asia manufactured modules. Indian modules will vary greatly in price depending on the use of Indian or exempt cells versus cells with safeguard duty. There is also not enough local manufacturing to meet demand, and the two-year limit to the safeguard duties will limit new investments. The Indian suppliers that have access to the US and European markets may also prefer to focus on exports to where prices are higher. Two thirds of Indian modules are also manufactured in Special Economic Zones (SEZ), to which duties apply under current conditions, but the issue requires further clarity from the government. Imposed duties on SEZ manufacturers hit back at many of those that supported the safeguard provisions. As for supply from exempt countries, mainly in South East Asia, some quantities may be redirected to India if European demand is insufficient. There are however doubts on how the origin of cells in imported panels will be declared so that the use of Chinese and Malaysian cells will be subject to duties. The above uncertainties on competitiveness concern cell manufacturers as well, with the addition that local cell manufacturing is even more constrained. Exactly who will benefit from the safeguard duties will be seen once developers and EPCs re-activate procurement after new price negotiations.
Non-tariff supply limited by cell manufacturing. Total year-end manufacturing capacity of cells in exempt locations adds up to 9.5 GW. In addition, IHS Markit estimates that 2.5 GW of cell manufacturing capacity is located in SEZs, and subject to tariffs until the government declares differently. Given the two-year limit on the duty, IHS Markit does not expect major additions of cell-manufacturing, besides 1.5 GW announced by JA Solar and LONGi. Depending on the export preferences for these exempt cell manufacturers, India is still likely to continue importing cells from China and Malaysia.
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