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According to the Finance Bill and D.O.F. No. 334/2/2020-TRU released by the Indian government on Feb. 1 and 2, the Budget 2020 proposed the following amendments:
The existing safeguard duty for solar cells and modules will end on July 29. The Budget 2020 proposed to raise the basic customs duty (BCD) from zero to 20% on both tariff items, namely solar cells, whether assembled in modules or panels. It’s worth noting that the BCD applies to imports of solar products from all countries.
India is the third largest solar market following China and the U.S. India’s module demand stood at 10 GW in 2019, with DCR projects, which require the use of domestic made cells and modules, and non-DCR projects constituting the demand. DCR projects contributed around 1.5 GW of demand, while non-DCR projects made up 8.4 GW. For non-DCR projects, China exported 5.8 GW of modules and 16 GW of cells to India in 2019. In other words, Chinese solar products accounted for more than 80% of the market in India.
Before the Chinese New Year, prices in the Indian market fell to USD 0.23/W. The market, which has high demand for multi-Si products, started picking up when the safeguard duty was reduced at the end of January. At present, the Indian-made modules are offered for a spot price of USD 0.23/W. However, the short-range price trend is unclear amid coronavirus outbreak.
With 15% SGD in place, it’s still profitable for Chinese manufacturers to export modules to India or assemble modules in Southeast Asia and then ship to India. From a cost perspective, Indian manufacturers would still pivot to purchasing modules from China.
According to the current customs duty structure, India’s safeguard duty has been reduced to 15% for the period from Jan. 31 through July 29, and it will step down on July 30. From July 30 onwards, the 20% of BCD might be imposed. However, the impact of BCD is limited given a plunge in prices across the multi-Si supply chain at the end of 2019 and the deadline of 2022 target of achieving 100 GW installed capacity is approaching. Therefore, PV InfoLink projects that India’s module demand will sit at 14.5 GW this year.
Given that BCD might apply to all countries, the estimated costs here is for all imported products. The costs of cells and modules here are calculated under the scenario that both are imposed a 20% of BCD; nevertheless, the Budget 2020 proposed to split the tariff items for solar products, so it appears likely that cells and modules will be imposed different tariff rates.
*Conventional multi-Si modules still dominates the Indian market now, so the estimated costs is calculated based on conventional multi-Si module costs.
*The cell costs of 2020 is calculated based on an anticipation that wafer prices will decrease to USD 0.190/pc by August and cell costs will have been lower by then.
The estimated costs show that Thailand and Vietnam, which are not subject to tariffs and have established economics of scale, will no longer enjoy costs advantage. Although imported products may be imposed BCD, prices of Chinese multi-Si products still have a competitive edge because of stocked inventory and a drop in prices occurred earlier in China. So, using Chinese products can reach the lowest costs in India.
India’s order of preference based on costs advantage is as follows:
1. Importing modules directly from China: The domestic capacity is unable to fulfil the 14 GW+ of module demand this year, so India still relies on module imports from China.
2. Capacities in Southeast Asia: Manufacturing lines have been converted from multi-Si to mono-Si, and taking profits into consideration, the capacities are mostly fulfilling demand in the U.S. market.
3. Capacities in India: India has around 12.7 GW of module capacity and 2.7 GW of cell capacity.
If BCD is imposed right after the end of SGD, costs of modules will be driven up. Despite of that, Indian developers will still purchase modules from China. With costs increasing after BCD and prices of multi-Si modules remaining low, importing multi-Si cells and modules can hardly generate profits.
2020 outlook: Conclusion
As the Indian government plays an active role in protecting the local PV industry, it is likely to impose the BCD after the safeguard duty ends at the end of July. If the BCD is imposed, India will expedite its module inventory draw during the supposedly weak Q2, in anticipation of the price increase brought by the duty. An inventory draw is expected in July if the BCD comes into force on July 30. The market will then slow in August and September, with demand hitting the lowest level of the year in Q3. Demand will pick up in Q4, when high season returns.
Comparing the estimated production costs of cells and modules between India, China, and Southeast Asia countries, it’s difficult for India to compete with cells and modules manufactured China and Southeast Asia even if the BCD is imposed at the end of July. So, apart from DCR projects that require the use of domestic made modules, developers of non-DCR projects will continue to use Chinese modules and tariff-free cells and modules from Southeast Asia.
Given the 20% BCD proposed by the Budget 2020, prices for multi-Si modules may increase slightly in August. Since buyers will finish drawing module inventory before the tariff rate changes, it’s expected that August to September will see the weakest demand of the year. Moreover, considering the costs and profits of multi-Si modules now, their prices are not likely to decrease further and rebound; prices are expected to remain low.
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