India's Ministry of New and Renewable Energy (MNRE) has decided to waive solar import duties, in a move that will benefit up to 6 GW of already bid-out PV projects, according to a new report by CRISIL Ratings.

Tariffs for the projects will increase by about $0.0062/kWh to $0.0086/kWh, as the developers will be allowed to pass on the impact of basic customs duties on cells and modules under a so-called “change in law.” The higher tariff will remain well below the average power purchase cost for distribution companies (discoms) in India, according to the report.

The imposition of basic customs duties (BCD) would have affected 17 GW of PV projects granted between Oct. 1, 2019, and March 9, 2021. These projects were likely to procure modules after April 1, 2022, and could not have factored the customs duties in their bid tariffs.

“Based on our discussions with industry players, we estimate that for 50% to 60% of the 17 GW capacity, modules may be procured domestically, keeping it out of the ambit of duty. For another 10% to 15% of such capacity, modules were imported before the BCD imposition,” said Manish Gupta, senior director at CRISIL Ratings. “Hence treating BCD as a ‘change in law’ event will benefit the remaining capacity of up to 6 GW, making the projects economically viable.”

The projects were bid at tariffs ranging from INR 1.99 ($0.024)/kWh to INR 2.92/kWh, with only 20% of the projects being at a tariff of more than INR 2.55/kWh. Thus the increased tariff post-pass-through is expected to be in the range of INR 3/kWh to 3.2/kWh, keeping them cost-competitive compared to the average power procurement cost for discoms in India.

“Tariff pass-through remains only a partial relief as returns for these projects will remain weaker than envisaged at the time of bidding, as module prices have risen by 50% since then,” said Ankit Hakhu, director of CRISIL Ratings. “This is in contrast to the industry expectation of softening prices, in line with past trends, and was not budgeted in tariffs while bidding.”