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Business News/ Industry / Energy/  No windfall profits for solar gear firms: Raj Kumar Singh

No windfall profits for solar gear firms: Raj Kumar Singh

With significant solar capacity impacted by the import duty, finance ministry has proposed a separate budget head be created for projects that need to be exempted from new rules and get reimbursed after making the basic customs duty payments, renewable energy minister Raj Kumar Singh said in an interview

Power, and new and renewable energy minister Raj Kumar Singh.Premium
Power, and new and renewable energy minister Raj Kumar Singh.

NEW DELHI : The Union government will not let domestic solar module makers generate windfall profits, power, and new and renewable energy minister Raj Kumar Singh said, at a time rising module prices threaten to impact the country’s ambitious solar capacity addition plans. Also, with significant solar capacity impacted by the import duty, the finance ministry has proposed that a separate budget head be created for projects that need to be exempted from new rules and get reimbursed after making the basic customs duty (BCD) payments, Singh said in an interview. Edited excerpts:

In the process of India’s energy transition, there has been an increasing dependency on China. It’s not only us, but the West has also realized this. How do you see this landscape evolving?

We saw this about two to three years back and decided to do something about it. We put in place three mechanisms. One mechanism was the approved list of models and manufacturers. So, only those models are utilized in our schemes which are listed in that. The second was that we decided to put up a tariff barrier. We announced this about one-and-a-half years in advance, and we said that from 1 April 2022, we will put up a tariff barrier of 40% on modules and 25% on cells. Now, that step spurred a huge quantity of investment in manufacturing here. Today, I have about 30GW of cells and modules manufacturing capacity coming up. Then we came out with a production-linked incentive (PLI) scheme. So, that was for about 4,500 crore. We sanctioned a capacity of almost 10GW under that. Then, we are coming out with another PLI scheme for 19,500 crore. It’s part of that 24,000 crore which was announced in the (FY23) budget. So, the cabinet note for a fresh PLI scheme using 19,500 crore is before the cabinet. That will lead to an additional 40GW of manufacturing capacity from polysilicon to modules. That makes it 80GW. Plus, I have a standing capacity of about 12GW. So, basically, all these capacities coming up will make us an exporter.

Some of it is old, so I have declared to the manufacturers that we will be phasing out the capacity, which churns out the older models of modules with lesser efficiency. We are going to come up with a policy whereby we shall put a cut-off for efficiency, in the sense that we will announce every two years the minimum standard of efficiency, which will be acceptable. My statement is that you cannot take the people of the country for granted, and you cannot sell outmoded substandard stuff anymore. Right now, the more efficient modules would have an efficiency of 21.5%-22%. So, that is what I am aiming for, and I want to drop the lower ones.

This has had a cost in slowing down my capacity addition. But I am prepared to pay that cost. I am not prepared to allow manufacturers to profiteer just because I have erected a barrier. I have told them that don’t increase the prices of cells and modules without any reason. Otherwise, we can even think of reducing the barrier. We want to manufacture in India, but we shall not allow you to exploit the situation to make windfall profits and drive the cost of power up. If you should be selling modules at 30-32 cents per kWh and you are selling at 40 cents, that means the cost of power is going to go up by that much more. People will have to pay for it. I am not going to stand for it. Now, the module price is 36 cents per kWh.

I took a meeting with developers; they said that there is no rationale for such high prices. I also took a meeting with manufacturers. So, they gave me a calculation as to how 36 cents per kWh is logical and fair. They have said that there is no polysilicon manufacturing capacity in our country or anywhere else except China. The Chinese have increased the prices of polysilicon by about 300%-400%. The prices of wafers have gone up by 300-400%. Therefore, the price of wafers, according to them, is today at 25 cents per kWh, and they say the conversion cost is equal to 15 cents per kWh. That makes it 40 cents per kWh, so where is my margin? That’s what the manufacturers said. So, I have asked the ministry to verify all this. We will verify, and we shall take a decision on this front.

What is the capacity impacted because of high prices?

The capacities which are impacted, according to our information, are about 26GW. That’s big. My installed solar capacity is about 60GW. It’s not all because of prices. Part of the impact on capacities is because of covid. What happened was that these capacities were bid out pre-covid and before the announcements of the customs duty imposition. So, the bids came without taking the customs duty into account. So, for those capacities, either the customs duty has to be grandfathered, waived for them, or it has to be a pass-through. States are not willing to give a pass-through as they say that 40% pass-through is too much.

So, we are in discussions with the ministry of finance for grandfathering. We gave two extensions of almost 18 months. Because of that, capacities which would have been completed before customs duty came into being crossed that line, and by the time those capacities were ready for modules to be installed, the customs duty had come in. With the states not willing to pass through and the finance ministry not willing to grandfather them, we are working out a modality. The finance ministry is of the view that let the developers pay the duty, and then after that, we will create a head wherein we will give you the money, so you can refund that customs duty. So, that is, I think, a better solution.

In solar, even if you give relief in terms of BCD, how much time would it take for projects to be completed?

Basically, these are the challenges we have to face when you have made up your mind to do “Make in India". But in the meantime, I am not going to allow anybody to make a windfall profit.

Your views on the wind sector?

The wind sector has not been progressing as fast as we would want. We have been interacting with industry as to why this is so. They said that because of the method of allocation of capacity which we have adopted, by open bid and reverse auction, the rates which are arrived at are low. So, people can only go to the windiest state, which is Gujarat. There, land availability is becoming an issue. Transmission is also becoming an issue.

So, we are looking around for a system whereby all the wind capacities are installed in all the windy states. So, we have carried out an exercise. Now, if I try and set up capacity in all the windy states together, I don’t have one tariff. I have a bouquet of tariffs. The speed of the wind will be different in Madhya Pradesh, Andhra Pradesh, Karnataka, and Gujarat, so the rates of electricity will also be different. So, we have decided to come out with a rule for pooling and bundling. All tariffs will be bundled together and then offered. It will be a rolling sort of thing every five years. Whether those bids will be only closed tender or after a closed tender, you have a reverse auction is something which we are grappling with.

What is your view on this?

The jury is out on whether a reverse bid should be there or not. While reverse bid will lead to lower prices, I also want capacity. It should not be a case that the bids are made, but projects are not installed. We will do the same in solar. If somebody wins a bid and does not construct, not only his bank guarantee will be forfeited, he will be blacklisted for 10 years.

How do we stand on the coal stock front for power projects?

We have some concerns. We are ensuring that the output is robust. When the stock came down to 7-8 million tonnes (mt), which is around 2-3 days‘ stock, I directed power plants to start blending. Blending has been happening since 2004-05. Then in 2018, the ministry of coal said we have enough coal, so please tell everybody to reduce blending or stop it. So, blending came down from 25 mt to 8 mt. But after that, demand went up. Coal supplies also went up but not to the level that was required. So, we said: start blending again.

I directed 10% blending. Then after that, the stocks went up to 24 mt. Then I told the states and IPPs that now that the 10% blending requirement is removed, you blend as per your requirement. But, to certain gencos, I said that from 10%, you bring it down to 5%. They brought it down to 5%, and their stocks started going down very rapidly. They came to us and said that allow us to take our blending back to 10%, but even then, their stocks kept declining. Again, they came back to us and said that they allow us to go up to 15%. So, we said okay. Now, the stocks are still going down. It was at 24 mt. Now it is at 20 mt. Every day, the domestic coal arrivals are about 200,000-300,000 tonnes short of the daily consumption. But despite the blending, we are going down. So, basically, that tension remains. The great thing is that we have added so much of renewables.

There was a thought process about REC being acquired by a non-NBFC PSU, and Power Grid Corp. was being considered for the same. What is happening there?

It is under examination. It has major advantages. Once you have two NBFCs together, which are good companies, then their combined borrowing and lending power comes down. But my sector is growing because my demand grew at 18% year on year. So, I need to add capacity, and I need to finance. The decision which was taken then was that if you have one company instead of two different companies, they will not be competing with each other. You will have synergies of scale, and their capacity to borrow at lesser rates of interest will lead to lending at lesser rates of interest. Thereafter, one thing we noted was that you need one company which will also perform a dual role of handholding of distribution companies and providing them guidance, expertise etc., which is REC. So, REC as a separate entity adds the biggest value because it leads the entire distribution sector, mentors it, guides it and provides consultancy. Right now, my established capacity is 404GW. Now, my consumption is 1,450 billion units. It is going to double in 2030 and will go up to 2,900 billion units. My capacity has to go up to 820GW. So, I have to add 400GW. So, I need a humongous amount of finance.

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Rituraj Baruah
Rituraj Baruah is a senior correspondent at Mint, reporting on housing, urban affairs, small businesses and energy. He has reported on diverse sectors over the last six years including, commodities and stocks market, insolvency and real estate. He has previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.
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Updated: 20 Sep 2022, 06:53 AM IST
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