India mulling over exempting some projects from solar import taxes

India’s renewable energy ministry is likely to support the demand for shielding some solar projects from impending taxes on solar equipment imports, after the producers said the added costs will slow the nation’s shift to clean energy.

“We have requested the Ministry of Finance to consider grandfathering of basic customs duty for projects bid out before March 9, 2021,” the renewable energy ministry said in support for exempting these projects.

The Indian solar sector has been growing rapidly over the past few years, with most cells and modules being imported from China. To encourage indigenous manufacturing of solar cells and modules, the government has slapped levies on import, effective from April 1, 2022.

This could jeopardize solar projects with a combined capacity of 28 gigawatts, according to the National Solar Energy Federation of India. The industry group has asked the government to shield projects awarded before March 9 2021, when the plan was officially announced, from the higher costs to keep them viable.

It is estimated that the import taxes,  about 40 percent for modules and 25 percent for cells, could add to power bills and slow the country’s efforts to move away from coal, which accounts for more than two-thirds of electricity generation.

“Such incremental costs will have an adverse impact on the perception of the renewable energy industry, which is seen as a cost-effective alternative to conventional sources of energy,” the group said in a letter to renewable energy minister Raj Kumar Singh. Without any tax relief, some projects might not get commissioned, it said.

India plans to expand its solar capacity to 280 gigawatts (GW) by the end of this decade from about 51 GW now, but its manufacturing capacity can only currently meet around half of that requirement. Adani Group, Tata Power Co, Vikram Solar Ltd. and Waaree Energies Ltd. are among the top local manufacturers. Mukesh Ambani’s Reliance Industries Ltd. has also pledged to build solar equipment plants.  

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