Industry reacts to the 25% duty as the Supreme Court allows to impose the safeguard duty on imports.

It has been a roller-coaster ride for the Indian Solar Industry and developers when it comes to the safeguard duty implementation. Recently the Supreme Court of India in the matter of the safeguard duty to be levied on imported solar cells has allowed the Central Government to levy 25% safeguard duty on imported solar cells and follow the previously announced order accordingly. This announcement nullifies the earlier stay from the Orissa High Court on the duty.

For the import-dependent solar power developers, the Supreme Court order which will be effective retrospectively from July 30th, 2018 might cost approximately an extra INR 500 crore ($ 72 Million) for some 1,000 MW of solar modules imported between July 30 & now. The financial burden will slow down the aggregate 16,000 MW projects in the pipeline. However, the announcement is being appreciated by the domestic manufacturers who believe that this step will help the industry which is currently facing competition with Chinese & Malaysian modules which are 8-10% cheaper.

However, not all domestic manufacturers stand to gain from the order. It will hurt the local manufacturers based in special economic zones (SEZs), which currently accommodate 40% of 10 GW of solar module manufacturing units and 60% of the 3 GW cell production base.

“The aggressive bid tariffs from July 30 up to now, are a clear indication that the industry has already factored in the 25% safeguard duty. The new projects will not be gravely impacted; the big worry lies with the aggregate 16 GW solar projects in the pipeline”, Mr. Pranav Mehta, Founder Chairman, National Solar Energy Federation of India (NSEFI) and Chairman-elect Global Solar Council (GSC).

Post the order from the Supreme Court, safeguard duty on the above-mentioned goods for a period of two years.

25% safeguard duty 30th July 2018 to 29th July 2019 (both days inclusive)
20% safeguard duty 30th July 2019 to 29th January 2020 (both days inclusive)
15% safeguard duty 30th January 2020 to 29th July 2020 (both days inclusive)

The notification which came into effect post a complaint from Indian Solar Manufacturers Association (ISMA) in Dec. 2017 after self-investigation. The investigation concluded that locally manufactured cells and panels, which constituted only 10% of the Indian solar projects in 2014-2015 and had reduced more in the subsequent years. 

Read the document here.

SUPREME COURT ALLOWS CONDITIONAL TRADING FOR NON SOLAR RECs

The matter of CERC’s order on new RECs pricing and the stay granted by the SC on trading, another  hearing was held in Supreme Court on 14th July 2017.

 

Main highlights of the Order:

 

  • An Intervention appeal was filed  requesting  obligated entities to purchase RECs at previous prices i.e. Rs 1500/ REC (MWH) with the additional amount deposited with the CERC

 

  • The Supreme Court allowed this, and directed that the differential price (Rs 500/REC) i.e. between the earlier floor price (Rs 1500/REC) and the present Floor Price(Rs 1000/REC) to be held by CERC during the pendency of the matter with Appellate Tribunal

 

  • Therefore, stay on the REC Trading (only for Non Solar RECs) have been withdrawn by Supreme Court and trade is likely to start. However, we believe that it will be some time before trading can start as CERC will have to develop modalities to accept such a deposit.

 

  • The stay on Solar RECs trading remains in place, and the hearing on that matter will be held  in due course

 

Today (17/July/17) the Appellate Tribunal was due to hear the above matter, but it has been postponed to a later date.

 

Implications of the SC order:

 

  • Trading will resume in the case of Non-solar RECs, but will remain suspended in the case of Solar RECs. However, we believe that it will be some time before trading can start as CERC will have to develop modalities to accept such a deposit.

 

  • Despite the start of trading, it is very unlikely that any meaningful demand for Non-solar RECs will materialise. Given the lack of any pressure to comply with RPOs, it is unlikely that any obligated entity will spend a higher amount while the matter is still sub-judice in the ApTel.

The SCs order can be accessed here

Our previous analysis of the order on stay of REC trading can be accessed here

 

An article, covering the order was published Business Standard. REConnect was quoted in the article suggesting that ““Trading will resume in the case of Non-solar RECs, but will remain suspended in the case of Solar RECs. However, we believe that it will be some time before trading can start as CERC will have to develop modalities to accept such a deposit”.

Analysis of Supreme Court Judgment on Applicability of Renewable Purchase Obligations

On May 13, 2015 the Supreme Court pronounced a landmark judgment on the applicability of Renewable Purchase Obligations (RPO) regulations. The case in question is Hindustan Zinc vs Rajasthan Electricity Regulatory Commission (RERC).

Background

In August 2012, the Rajasthan High Court had dismissed an appeal by Hindustan Zinc Ltd., Ambuja Cements Ltd., Grasim Industries Ltd. and 14 other companies that challenged RPO regulations enacted by the state regulator (Rajasthan Electricity Regulatory Commission; RERC).

The key points contested by captive (CPP) and open access (OA) users in the petition were:

  • RERC did not have the authority to pass the order of RPO and impose surcharge (penalty) as CPP and OA were completely de-licensed activities under the Electricity Act 2003 (EA 2003)
  • EA 2003 only allows RPO on the ‘total consumption in the area of the distribution licensee’ and therefore intends to apply RPO on distribution licensees only

The High Court rejected the petition stating:

  • The word ‘total consumption’ has been used in the EA 2003, and should be considered as total consumption in the area of distribution licensee in all modes. Total consumption has to be seen by consumers of distribution licensee, captive power plants and on supply through distribution licensee. It cannot be inferred by mention of area of distribution licensee that only consumers of the distribution licensee are included.
  • The objective behind imposition of RE obligation is in the greater public interest. The constitution casts duty on the Regulatory Commission to protect and improve the natural environment. This duty can be imposed on CPP and OA as well.

The above order of the Rajasthan High Court was challenged in the Supreme Court.

 

Order of the Supreme Court

In its order, the Supreme court dismissed the appeal of the petitioners, and upheld the RPO regulations made by RERC.

The court stated several important points in its judgment:

  • Imposing RPO is desirable in the larger public interest. The court observed that:

“…The Right to live with healthy life guaranteed under Article 21 of the Constitution of India, it has also been interpreted by this Court. It includes the Right to live in a pollution free environment and laid down the law in a catena of cases…”

and

“The impugned Regulations fall within the four corners of the Act of 2003 as well as Electricity Policy, 2005. The object of imposing RE Obligation is protection of environment and preventing pollution by utilising Renewable Energy Sources as much as possible in larger public interest.”

And further:

“The Coal dominates the Thermal Power Generation which results in Green House Gases resulting in global warming. The said facts were brought to our notice that the same would certainly justify the case of the RERC in framing the impugned Regulation to achieve the object of the Act and the Constitution by imposing RE obligation on the captive gencos.”

  • RPO applicability on captive and open access consumers is well within the ambit of the Electricity Act 2003.

“The High Court has considered the submissions of the appellants and has rightly rejected the same on the ground that the RE obligation imposed on the captive gencos under the impugned Regulations is neither ultra vires nor violative of the provisions of the Act of 2003 and cannot in any manner be regarded as a restriction on the fundamental rights guaranteed to the appellants under the Constitution.”

  • Cost of fulfilling the obligation cannot be held above the larger public interest.

“The purchase of nominal quantum of energy from renewable resources cannot adversely affect the cost effectiveness of the Captive Power Plant. Moreover, the object being reduction of pollution by promoting renewable source of energy, larger public interest must prevail over the interest of the industry….”

As a result of the above findings, the court dismissed the appeal.

“Upon consideration of the rival submissions by the well-reasoned order, the High Court has rightly upheld the validity of the impugned Regulation and we do not find any reason to interfere with the impugned judgment. All the appeals are dismissed as the same are devoid of merit.”

Implications of the order

This order is likely to have far-reaching implications on the enforcement of RPO regulations.

  • Stay by HC in various states may become redundant: Till date, the enforcement of RPO regulations has been lax due to various reasons. One of the reasons has been the stay granted by various High Courts like in the case of Gujarat (recently vacated), MP and Tamil Nadu, among others. With the Supreme Court now ruling in favour of imposition of RPO, the existing stay may become redundant.
  • Enable stronger enforcement: Further, the order is likely to provide support to the state electricity regulators to impose RPO regulations more forcefully and effectively.

Media coverage: Bloomberg & Business Standard.

For recent APTEL order on RPO click here.

TN Govt. Approaches Supreme Court against APTEL Order

Tamil Nadu Government has filed a petition in Supreme Court against the order of the Appellate Tribunal for Electricity (APTEL) dated 21st January 2014. The order says that state government cannot specify solar power obligation (SPO) for special category of consumers (applicable for all obligated entities except TANGEDCO), when there already exists Renewable Purchase Obligation (RPO) for the consumers in the state.

Background – The Govt. of Tamil Nadu drafted its solar policy (announced in 2012), mandating certain consumer to buy solar power, which was finalized by the Tamil Nadu Electricity Regulatory Commission (TNERC) in its order dated 7th March 2013. The order stated that – “As prescribed in the Solar Policy, 6% SPO starting with 3% SPO till December 2013 and 6% from January 2014 is applicable”.

The Tamil Nadu Spinning Mills Association appealed to APTEL for the removal of the Solar Purchase Obligation as RPO does mandate purchase of solar power.

The APTEL in its judgment said that the state commission cannot impose any other obligation such as SPO, as RPO already exists in the state. So the State Govt. has moved to the Supreme Court challenging this , as it clearly intends to impose SPO under its Solar Policy.

It is also worth noting that TNERC has mandated RE purchase to a total of 9% under its RPO regulation, which is one of the highest in India, with 0.05% Solar RPO and 8.95% Non-Solar RPO. The commission in its draft RPO Regulation 2014, has increased the solar RPO to 2% and total to 11%, to bolster Solar Power in the state in case SPO is not implemented.

Our Previous Blog Post on the same matter can be read here.

The recent media Article can be read here.

Preceding APTEL Order is available here.

Contributed by Dheeraj Babariya.

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