Solar power developers are seen to be receiving Rs 4,000 crore as reimbursements against various taxes and duties levied by the central government after the projects were bid out, rating agency Crisil said. The payments would be made to compensate solar power producers for the additional expense they had to bear due to the imposition of the goods and services tax (GST) and a safeguard duty on imports of equipment from China and Malaysia.
The Central Electricity Regulatory Commission has allowed the incremental expenditure due to these taxes to be passed through to consumers under the ‘change in law’ provision. “Counterparties, including the Solar Energy Corporation of India (SECI) and power distribution companies (discoms) such as Maharashtra State Electricity Distribution Company, have started making payments towards GST reimbursements for their respective projects,” Crisil noted.
The agency had earlier pointed that the safeguard duty had increased the implementation cost of around 5.4 giga watt (GW) of solar projects by as much as 15% and compressed the returns of developers by 160 bps. The hike in GST levy on modules and related plant construction activities was seen to reduce returns by a further 60 bps. However, to ensure returns don’t diminish because of delays in payment, the regulator has allowed reimbursement in the form of a 13-year annuity and also factors in a carrying cost of 10.4% on a retrospective basis.
To discourage procurement from China, a 25% safeguard duty on solar equipment import from China, Malaysia and developed countries was imposed in July 2018. The duty was scheduled to gradually come down to 15%. The tax regime was slated to end in July 31, but the government has decided to continue with the 15% safeguard duty on these imports for another year. The government also had plans to impose a 20% basic customs duty on solar imports, but no decision has yet been announced on this front.