The Ministry of New and Renewable Energy should reconsider its move to introduce a cap on solar tariffs in capacity auctions of its implementing body, Solar Energy Corporation of India. The Ministry has asked SECI to set the maximum permissible tariff at ₹2.50 a kWhr, and 18 paise more than that if safeguard duty is levied. Solar power generators, already squeezed by the impact of the falling rupee on panel imports, may feel less enthused to invest, despite the 18 paise pass-through to negate the levy impact. Recently, the Supreme Court allowed the Centre to implement ‘safeguard’ duty on panels imported from China and Malaysia, setting aside a stay issued by the Orissa High Court; hence the tariff relief. However, it is hard to understand how a relief of 18 paise has been arrived at, when experts have placed the burden at around 40 paise. By setting a cap, the Centre is going against a basic reforms tenet of leaving price determination to market forces. Over the years, China has played a lead role in bringing down module prices, enabling solar to become competitive vis-a-vis coal-based power. Competition in solar power, aided by capital subsidy and easy facilitation of land through solar parks, enabled generators to reduce tariffs. This process of price discovery should continue, without the government responding in a knee-jerk manner to market conditions.
India’s solar story is coming along rather well, with the country having just crossed the 25 GW milestone. As at the beginning of August, Letters of Intent for another 9.9 GW had been issued and another 24.4 GW of capacity had been tendered out. In recent auctions in Gujarat, the lowest tariff was still at ₹2.44. High priced tenders are weeded out, anyway. In July, Uttar Pradesh annulled a 1 GW tender as it held the best tariff of ₹3.48 too high. In March, Gujarat has similarly cancelled a 500 MW auction, finding the tariff of ₹2.98 unacceptable. Tenderers have always had the liberty to judge the quoted tariff, in view of the prevailing circumstances, such as the depreciating rupee. At this juncture, the cap is an unwelcome spoke in the wheel.
The imposition of safeguards duty is emerging as a contentious issue, with Taiwan and Malaysia seeking a discussion at a WTO forum. It was introduced soon after the WTO struck down India’s domestic sourcing norm, on an appeal by the US. India’s single-minded efforts to promote domestic manufacture of solar modules may not reap economic gains. It is on the basis of low cost imported modules, as well as global improvements in energy conversion, that unit costs in solar have fallen so far. Jobs, too, are generated not so much in making these modules as in their installation and manufacture of accessories. If domestic manufacture of solar panels is being pursued for strategic reasons, such as reducing dependence on energy imports, it is a different matter.