Safeguard Duty Reimbursement Order To Restore Returns of 5.4 GW Solar Project

Solar power producers will make more money now as the central power regulator CERN’s recent order entitles the developer of Bhadla solar park project to reimbursement of Safeguard Duty, paving the way for more clean energy projects to take shape.

The Central Electricity Regulatory Commission (CERN) has allowed 5.4 GW solar power project by Bhadla Solar Power, to get its safeguard duty back. This move will add to gains to the tune of 1.9-2.2% of the equity returns—basically, the promoters and shareholders will make more profits.

“Apart from benefiting affected projects, the reimbursement order provides much-needed clarity by emphasizing a definite timeline for payments, and gives preference to the one-time payment mechanism,” said Ankit Hakhu, Associate Director, CRISIL Ratings.

A report by CRISIL said that after the ruling, solar power producer will be compensated by law and will not have to wait for it for a year like the Bhadla park developer.

The CERN ruling also directed Solar Energy Corporation of India and electricity distribution companies of Rajasthan to compensate the developer of the Bhadla solar park project.

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Safeguard Duty Effect

After the safeguard duty was imposed on the import of solar cells and modules on July 30, 2018, equity returns had fallen affecting investor confidence in the sector. Because it was levied after 5.4 GW projects were auctioned in 2017 and early 2018, it was not factored in by developers, which lowered their returns.

The order can change the way safeguard duty will affect the solar power industry since it was imposed in 2018. The move had shrunk solar power gains by 12-15%. “The safeguard duty had increased the cost of the solar projects by about 15% because the solar modules used in the projects were largely imported from China and this amounted to 60% of the total project cost,” the report said.

CERN has classified the reimbursement of safeguard duty under ‘Change in law’ provision in the Bhadla solar park project. The duty had increased the cost of solar projects by about 15% because the solar modules used in the projects were largely imported from China. And this amounted to 60% of the total project cost.

“Continuing interest of solar project developers is a function of how much gets left on the table,” said Manish Gupta, Senior Director, CRISIL Ratings.