India Solar Anti-dumping duty
Policy Brief
DGAD is required to conclude
the investigation and give
its recommendation to the
Ministry of Finance within 12
months, subject to a 6-month
extension in certain cases
DGAD may also decide to
impose a provisional duty,
is levied under critical
circumstances in which
there is a clear evidence that
imports have caused serious
injury to the domestic
industry
on PV cells and modules
November 2017
Introduction
In July 2017, India Solar Manufacturers Association (ISMA) filed a petition
with Directorate General of Anti-Dumping & Allied Duty (DGAD), Ministry of
Commerce and Industry, Government of India for investigating imports of solar
cells and modules from China, Taiwan and Malaysia. The investigation petition
covers both thin film and crystalline technologies and affects imports making
up more than 85% of total cells and modules used in India.
Decision process and timelines
DGAD has the mandate to provide the domestic solar manufacturing industry a
level playing field against the impact of unfair trade practices like dumping and
subsidies by other countries. It can use trade remedies like anti-dumping duty
(ADD), countervailing duty, import quotas etc under appropriate framework of
WTO, Customs Tariff Act & Rules and other relevant laws and international trade
agreements. Anti-dumping investigations involve a detailed examination of:
• Dumping Margin – difference between the export price and normal value
(price in the exporting country);
• Injury margin – difference between the non-injurious price (or fair selling
price) in domestic country and the landed value of imports;
• Causal Link – establishing a causal link between dumping and material
injury to the domestic industry;
As described in Section 9A (1), Customs Tariff Act, 1975, DGAD may recommend
an anti-dumping duty not exceeding dumping margin or the injury margin. DGAD
is required to conclude the investigation and give its recommendation to the
Ministry of Finance within 12 months, subject to a 6-month extension in certain
cases. Final decision on appropriate trade remedies is taken by the Ministry of
Finance. Under the Act, the anti-dumping duty is imposed for a time-period of 5
years. At the end of this period, DGAD is required to conduct a sunset review to
determine if the imposed duty needs to continue. It can also conduct an interim
review to examine need for continued imposition of the duty.
Analysing timelines of 35 anti-dumping cases from 1999-2016 in India in
which anti-dumping duties were levied, we observed that the anti-dumping
duty decision took an average of 15 months from initiation of investigation. For
instance, an anti-dumping petition was filed in Jun-2016 for colour coated, pre-
painted flat steel products imported from China and EU and the anti-dumping
duty was imposed in Aug-2017, 14 months after petition submission date. As
per this time line, final decision on anti-dumping duty on import of PV cells and
modules may be expected by October 2018.
Some industry experts feel that DGAD may also decide to impose a provisional
duty. Provisional duty is levied under critical circumstances in which there is a
clear evidence that imports have caused serious injury to the domestic industry.
© BRIDGE TO INDIA, 2017 1
 The trend of past cases shows that provisional duty is generally announced
about 7 months after initiation of investigation. In the case of colour coated, pre-
painted flat steel products also, the provisional duty was imposed in Jan-2017, 7
months from commencement of investigation. This suggests that a provisional
duty on import of PV cells and modules may be announced by Feb-2018.

Figure 1 Anticipated decision timeline

Petition filed

Jul Sep Nov Jan Mar May Jul Sep Nov

Aug Oct Dec Apr Jun Aug Dec

Feb Oct

Expected Expected
provisional duty anti-dumping duty
2017 2018
Source: BRIDGE TO INDIA research

But there is a very strong buzz in the industry that a duty announcement is
about to come anytime now. The government is under pressure about the
poor state of manufacturing despite its ‘Make in India’ initiative and ten times
growth in module demand in the last three years. If DGAD and the Ministry of
Finance are sympathetic to the case, it is certainly possible that a provisional or
anti-dumping duty may be imposed imminently.

Impact on solar project pipeline

As on September 30, 2017, India’s total utility scale solar project pipeline,
comprising projects allocated to project developers and EPC contractors, stood
at 10,842 MW. All these projects face threat of provisional or anti-dumping duty
depending on when the decision is announced.

Figure 2 Solar projects potentially impacted by ADD decision

ADD imposed in 2017
4,000 3,502
Provisional duty is imposed in Feb-2018
Capacity, MW

3,000
ADD imposed in Oct-2018
2,000
1,500
1,200
1,000 750
340 500 500
100 250 250 250
0
Pending pipeline

Pending pipeline

Karnataka-1,200 MW

SECI-Andhra
Pradesh-100 MW

SECI-
Bhadla-250 MW

SECI-Bhadla-500 MW

Tamil Nadu-1,500 MW

NTPC-Kadapa-250 MW

NTPC-250 MW

Gujarat-500 MW

Madhya Pradesh-
REWA-750 MW

Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

Commissioning timeline
Open DCR

Source: BRIDGE TO INDIA research

Notes: 1. Q4 2017 capacity numbers include projects scheduled for commissioning in
this quarter plus projects delayed from previous quarters.
2. This chart does not include the Jharkhand 1,200 MW tender and APGENCO
500 MW EPC tender.

© BRIDGE TO INDIA, 2017 2

 While the domestic content requirement (DCR) pipeline should not be directly
affected by ADD, we expect these projects to also face cost increases as
domestic module manufacturers would hike prices immediately in the event of
any duty imposition.

Operational and financial impact on pipeline

projects
Modules contribute to approximately 60% of the total project cost of solar
projects. At current price of USD 0.36/ Wp, a duty of 30% would increase
project cost by 18%, or INR 895 million (USD 14 million) for a 100 MW project.
Project returns are expected to fall significantly in such a scenario. The
following chart shows impact of different levels of duty on a project earning
10%, 8% or 6% unlevered project IRR, other factors remaining constant.

Figure 3 Impact on project IRR from ADD

12
10.0
10 9.2
8.5
8.0 7.8
8 7.3 7.2
6.6
Project IRR, %

6.0 6.0
5.4 5.4
6 4.7
4.1
3.7
4

0
0% 10% 20% 30% 40%
Anti-dumping duty, %

Source: BRIDGE TO INDIA analysis

As the negative impact of duties is significant – about 3% fall in returns at a

duty level of 30% - the petition is a major risk to the viability of all pipeline
projects, where modules have not yet arrived on site. The immediate impact for
these projects is significant completion delays as the developers are anxiously
waiting in anticipation of a decision. More critically, if a provisional or anti-
dumping duty exceeding 10% is imposed and no recourse is provided to the
developers, the pipeline projects face the risk of abandonment except where
material capital has been already committed to the projects. This would be a
grave scenario for the sector and all concerned stakeholders.

The optimistic scenario for the sector is that projects auctioned before the date
of petition (July 2017) are grandfathered or that the central or state governments
compensate them for extra costs. We are however, not aware of any such
precedence across different sectors and believe that the probability of such an
outcome is at best 50%.

Some developers have argued that they would seek change-in-law protection if
a provisional or anti-dumping duty is imposed. Our analysis shows that if 30%
duty is imposed and module cost is USD 0.36/ Wp, tariff will need to go up by

© BRIDGE TO INDIA, 2017 3


Solar auctions in India are
so aggressive that it seems
unrealistic a developer
building a sufficient financial
buffer would be able to win
any capacity
about INR 0.48/ kWh (17%) to restore pre-duty financial returns of the solar
project. We believe that the probability of getting change-in-law compensation
is minuscule as such provisions in most PPAs are rather weak and the
DISCOMs would fiercely resist any cost pass through.
Upcoming auctions
Any auctions conducted while a duty decision is pending also face an uncertain
future. As of September 2017, there are 2,655 MW (2,087 MW in open category
and 568 MW in DCR category) of tenders, which have been announced and are
awaiting auctions. SECI is expected to imminently conduct an auction for 750
MW in Bhadla solar park.
The challenge for developers is how to price duty risk. Solar auctions in India
are so aggressive that it seems unrealistic a developer building a sufficient
financial buffer would be able to win any capacity. The recent Gujarat 500 MW
auction in September 2017, is a good example – it was won by Azure Power,
GRT Jewellers, Gujarat State Electricity Corporation Limited and Gujarat
Industries Power Company Limited at extremely competitive tariffs between
INR 2.65-2.67/ kWh.
There are two broad range of possibilities for auctions held in the intervening
period, both equally unappealing – developers continue to bid aggressively, in
which case, the projects would be financially unviable if a duty is subsequently
announced; or the developers exercise restraint, resulting in less competition
and higher tariffs, in which case, the DISCOMs might retreat and refuse to sign
PPAs as seen in many tenders recently.
Impact on domestic manufacturers and
manufacturing investments
In FY 2016-17, 89% of solar modules used in India were imported from
China and other countries. Indian project developers favour Chinese module
manufacturers as these are approximately 10% cheaper than domestic
modules. The projects using domestic modules did so only because of DCR
stipulation, without which, the share of imported modules could have been as
high as 95% or possibly, even greater.
Figure 4 Source of modules used in India in utility scale projects
Others
10%
India
11%
China
79%
Source: BRIDGE TO INDIA research
Note: This data is for 6,387 MW of utility scale projects completed in FY 2016-17
© BRIDGE TO INDIA, 2017 4

The key issue for the sector
is whether Indian or other
manufacturers would be
able to use the opportunity
afforded by duties to make
investments and create a
thriving, competitive module
manufacturing sector in India
As per MNRE, India’s total installed solar cell and module manufacturing
capacity was 3.2 GW and 8.5 GW respectively as of May 31, 2017, but the
operational capacity was only 1.7 GW and 5.5 GW for cells and modules
respectively. As against this, actual production in 2016-17 was only 0.7 GW
and 1.7 GW respectively.
Figure 5 Capacity and production for modules in 2016-17
Installed capacity, MW 8,398
8,398
Operational capacity, MW
5,507
Actual production, MW
1,764
Figure 6 Capacity and production for cells in 2016-17
Installed capacity, MW
3,164
Operational capacity, MW
1,667
Actual production, MW
591
Source: BRIDGE TO INDIA research
The domestic manufacturers have been struggling because of their inability to
compete on price with Chinese manufacturers. Most of them have sub-scale
capacities, high cost base and are completely reliant on imported technology
and raw materials. Imposition of ADD or provisional duty exceeding 10% shall
enable them to price at profitable levels and increase production.
But the key issue for the sector is whether Indian or other manufacturers
would be able to use the opportunity afforded by duties to make investments
and create a thriving, competitive module manufacturing sector in India. There
is a huge gulf between the scale and technological or operational capability
of Indian and Chinese manufacturers. Moreover, the Chinese manufacturers
have been expanding internationally to counter threat from trade barriers.
Canadian Solar, Jinko, Trina, JA Solar and Talesun are some of the notable
names to set up manufacturing facilities in Indonesia, South Korea, South
Africa and Thailand precisely for such purposes. They should be able to
circumvent duties, at least partly, by routing exports from these manufacturing
bases, in turn mitigating the negative and positive impact on developers and
manufacturers respectively.
We believe that trade barriers alone will fail to achieve their target to promote
domestic manufacturing unless they are backed up by other policy reforms to
improve competitiveness of Indian manufacturing.
© BRIDGE TO INDIA, 2017 5

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Conclusion
The anti-dumping duty petition has created huge uncertainty for the entire
solar sector. It comes at a very inopportune time with the sector already reeling
from slowdown in new project procurement, extra costs due to GST, import
duties and increase in module prices. It affects all stakeholders and projects in
pipeline as well as those awaiting auction.
The Indian government has a tough decision to make as it needs to strike
balance between demands of manufacturing and project development
activities. If developers are not compensated for extra cost, many of the under-
construction projects face risk of abandonment as they have little financial
cushion. On the other hand, announcement of duties alone is unlikely to have
any enduring benefits for domestic manufacturing beyond throwing a financial
lifeline to the existing manufacturers.
Disclaimer
© 2017 BRIDGE TO INDIA Energy Private Limited
Authors
Arti Mishra Saran, BRIDGE TO INDIA
Vinay Rustagi, BRIDGE TO INDIA
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