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The National Solar Energy Federation of India (NSEFI) expressed concern about the impact of Basic Customs Duty (BCD) on projects granted before March 1, 2021, in a letter to Union Power Minister R.K. Singh. Solar cells with the HSN number (85414011) will have a BCD of 25%, while solar modules (85414012) will have a BCD of 40%.
In March 2021, the Ministry of New And Renewable Energy (MNRE) announced the BCD to be imposed on imported solar cells and modules from April 1, 2022. The announcement to apply BCD on solar cells in modules did not allow grandfathering of already awarded projects, which have a cumulative capacity of 15 GW.
According to NSEFI, several projects granted prior to the announcement to impose BCD were intended to attain a commercial operation date prior to the start of BCD. However, as of now, the COVID-19 epidemic and the delay caused by the Supreme Court’s judgement in the ‘Great Indian Bustard’ case have delayed the commercial operation date of several of these projects past March 31, 2022.
NSEFI argued that the introduction of BCD will have a negative impact on 15 GW of solar installations unless grandfathered. Furthermore, the federation claims that the added cost under the change in law compensation will cost the end-user at least Rs 0.30 per kWh and up to Rs 0.50 per kWh if imported cells are used in modules for these specific projects.
The added expenses will harm the impression of the renewable energy business, which is viewed as a cost-effective alternative to traditional energy sources.
There is also a chance that the higher tariff caused by the BCD will be unappealing to distribution businesses (DISCOMS). This might result in the termination of an existing PPA or the rejection of a proposal with increased tariffs, as it will have a direct influence on the overall power purchase cost.
Additionally, developers will be obliged to raise short-term working capital or extra equity at considerably higher interest rates to cover the additional cost, resulting in making these projects economically inviable.
Since the planned BCD was revealed in Budget 2020, MNRE has been planning to impose it. MNRE published a notification in September 2020, seeking solar PV producers and associations to offer a list of machinery and capital products necessary for inclusion in List 19 for exemption from BCD.