ABSTRACT

 Solar and wind energy undertakings of more than 21,142 Megawatt (MW) are presently under development in India, far beyond the 88,000 MW as of now introduced generation capacity is dependent on the two clean assets. In a report [1] the Central Electricity Authority (CEA) said that these projects were bid out under various schemes like the Solar Energy Corporation of India’s 2- GW ISTS-connected Scheme, 150 MW Grid-connected floating Solar PV Plants, the CPSU Scheme’s Tranche-I of 2 GW and Tranche-II of 1,500 MW 750 MW Rajasthan Projects, 750 MW Kadapa Solar Park Project, and nine tranches of SECI’s Wind Schemes which are being built across Andhra Pradesh, Gujarat and Rajasthan being geographically natural resource-rich. The report additionally said that the Government had offered ventures with 31,500 MW limit of which 23,246 MW limit ventures were granted to developers.

 The Solar [2] segment, which shapes the spine of India’s spotless vitality desire, presents a valid example. As much as 80% of India’s cells and modules are imported from China. India at present has an introduced solar capacity limit of 34 GW, and an objective of 100 GW by 2022. As much as 22 GW of solar limit is in the pipeline and another 25 GW is in different phases of the process of tendering.

 However, the lofty goal of installing 100 GW solar power by 2022 has hit two roadblocks- the COVID-19 Pandemic and India-China border tensions. Both of these developments have made it difficult for manufacturers to import and install solar PV cells, modules and associated equipment from China, thus adversely affecting under construction solar projects. Currently, the Government has issued a slew of measures like 20% Basic Customs Duty, rising trade obligation on solar hardware, and a blend of reformatory taxes and compulsory security testing for ordinary force gears which are intended to debilitate imports from China. However, work deficiency of local modules and proposed obligations on module imports could prompt critical cost overwhelms for Indian developers.

 This article explains the effects of both these recent developments on under construction solar power projects.

 Supply Chain Disruption Due to COVID-19

 On 19 February, 2020 Ministry of Finance issued an Office Memorandum [3], ordering all central Government agencies to treat disruptions in supply chain due to the spread of Coronavirus in China and other countries as a force majeure event. This suit was followed by MNRE’s Office Memorandum dated March 20, 2020 [4] which mandated all Renewable Energy implementing agencies under MNRE to treat supply chain disruptions due to the COVID-19 pandemic as force majeure events and accordingly extend the Scheduled Date of Commissioning. However, the Office Memorandum is only binding for implementing agencies under MNRE and holds mere persuasive value for state implementing agencies and contracts between private parties.

 In addition to this, MNRE has also issued a series of Office Memoranda [5], declaring lockdown due to Pandemic as a force majeure event for a period of five months, i.e., from 25 March – 24 August, 2020. Accordingly, all implementing agencies under MNRE are required to extend the Scheduled Date of Commissioning by a period of five months. These memoranda are applicable to all under construction renewable energy projects across the board and do not require any evidence to establish that the force majeure event is affecting the construction of the project.

 Unlike the memoranda relating to lockdowns in India, any party seeking relief on account of breakdown of supply chain due to spread of Coronavirus in other countries will have to present evidence regarding the same. The Office Memorandum also requires the party seeking relief under force majeure clause to follow due procedure, i.e., requirements like notice and mitigation present in the force majeure clause should be adhered to. For instance, in the case of Clean Wind Power (Bhavnagar) Private Limited v. Maharashtra State Electricity Distribution Co. Ltd. [6], where the construction of a wind power plant was stalled due to the onset of Coronavirus, the wind power developer gave notice under force majeure clause in April but sought relief under the clause from 21 February 2020, i.e., date on which Ministry of Finance declared disruption in supply chain as a force majeure event. The Maharashtra Electricity Regulatory Commission (MERC), rejected the plea and allowed suspension of contract only from the date of serving of force majeure notice and not from the date on which Finance Ministry declared disruption of supply chain due to COVID-19 as force majeure.

 In M/s. ACME Heergarh Powertech v. Maharashtra State Electricity Distribution [7], the power producer approached the court for declaring the Power Purchase Agreement void on grounds of frustration. While denying the plea, MERC held that disruption in supply chain is to be treated as force majeure event and thus will have the effect of only suspending the contract till the time the force majeure event exists.

 However, the lockdowns have only moderately affected solar power plants. According to Fitch Group Company’s India Ratings and Research (Ind-Ra) [8], solar projects will be stable for the second half of the current financial year (2020-21), envisioning their incomes from power generation to be in accordance with desires. Further, Ind-Ra’s Senior analyst for infrastructure and project finance, Divya Charen [9] pointed out: 

“The credit profile of solar projects is on a strong footing, backed by stable operations and manageable counterparty risks despite the ongoing pandemic. Also, despite a fall in electricity demand due to lockdowns, solar projects have remained mostly unaffected in the first quarter of the year, with project and grid availability remaining above 95% for most of the portfolio.”

Divya Charen

 Effect of Indo-China Border Tensions 

 The Galwan valley faceoff in late June between India and China has soured the relationship between the two countries. The increased attempts by the Chinese to claim Indian territory has subsequently led to increased public demand for economic retaliation against China. It has also led to increased scrutiny of Chinese goods and investments due to national security concerns. Government has already taken steps to check the increasing dependence on China for goods, services and investments. Some of the measures taken by the Government are putting a ban on certain Chinese apps, dropping of Chinese Foreign Direct Investment from automatic route, cancellation of Government contracts with Chinese parties and barring Chinese companies from taking part in Government bids.

 The call for economic retaliation is an increasingly significant talking point as there exists a huge deficit in India-China trade. For the period between April 2019 and February this year, 11.8 percent of India’s absolute imports were from China. Be that as it may, India’s exports to China accounted to a mere 3 percent. The deficiency with China has remained at $3.3 billion in February 2020, a 13 percent ascend from the previous year. This is despite the fact that India’s overall imbalance stayed levelled from a year back at $9.8 billion. Bilateral trade with China contributes to 40% of India’s trade deficit.

 The dependency on Chinese imports in solar power sector is especially grim – 84% requirement for the National Solar Mission is met through Chinese imports. The Standing Committee on Commerce with Naresh Gujral as Chairman, in its report [10] on ‘Effect of Chinese Goods on Indian Industry‘ noticed that import costs of solar PV modules and cells in India are lower than their import costs in Japan and Europe, recommending that Chinese merchandise are being dumped in Indian business sectors as part of a prolonged practice. The report suggested that: (i) anti-dumping duties which revives the business practice should be undertaken to secure domestic solar industry, and (ii) quality norms be forced to guarantee that imported Chinese products for the Solar sector shall not contain destructive substances, like antimony.

 Although the Government has not issued any tariff, non-tariff measures to counter India’s dependency on Chinese solar modules, a notice [11] issued by the Ministry of Power has slowed down release of consignments from ports. The notice requires the Bureau of Indian Standards and other certified testing agencies to check the presence of any harmful embedded software on all power supply system equipment, components and parts imported into the country. Due to lack of testing capacity and manpower, release of consignments from ports is being delayed. The impact of such delays in release of consignments on performance requirements and Scheduled Date of Commissioning will vary from contract to contract.

 The aforementioned notice [12] further requires import of equipment or components from “prior reference” countries such as China and Pakistan to seek prior permission of the Government of India. Imports from persons or entities which are owned by, controlled by, or subject to the jurisdiction of any prior reference country will also be required to take approval before being imported to India.

 Post Indo-China border tensions, the reaction of the Indian Government, keeping in mind the national security and sentiments of public, towards the developing outskirt pressures with China has been to boycott China and its products. The effect and viability of this reaction is to instill belief of the public in domestic products and to diminish Chinese dependability, which supplements PM Modi’s call for ‘Atmanirbharta’, or a ‘Self Reliant’ India – where one’s monetary recuperation from COVID-19 could be based on the back of our domestic industries’ ‘vocal for local’ esteem creation.

CONCLUDING REMARKS

 The recent development of spread of Coronavirus and India-China border tensions has caused many projects to extend their scheduled dates of financial closure. The increased security check on Chinese imports is causing inadvertent delays in release of consignments. Apart from this, Government has also operationalised  the ‘Approved Lists of Models & Manufacturers (ALMM) for Solar PV modules and cells from 3 September, 2020 which will require all Government owned/ Government assisted procurers to import solar PV cells and modules only from manufactures which are included in the ALMM. This will increase the compliance cost for producers importing equipment from other countries.

In such a situation, the solar industry is looking for some reprieve from the Government with the goal to sustain during this monetary emergency and work towards meeting the drawn-out sustainable power source targets’ of the nation. A solid and vital restoration plan is needed for the business to help accomplish its objectives on schedule. We may likewise require more focused strategy with decentralized activities, for example, increasing investments in Rooftop Solar installations and giving boost to domestic production [13] of Solar cells, modules and other equipment. This pandemic has given a chance to the Government of India [14] to set a specimen and make a boost plan which is green, productive and reformative.

 Solar energy has been addressed and classified as an essential service [15] by the Government simultaneously allowing the movement of all related commodities by providing relief to the ones associated to the sector. Further, relying on moratorium period over term credit reimbursements for a quarter to the business has likewise diminished the worry generally. All the more, such estimates taken by the administration can assist the business with flourishing results and conceivably even skip back more grounded when this emergency gets over. Guaranteeing an absolute necessity-run status and including solar power generation as a fundamental administration during the COVID-19 lockdown was a prudent move for the whole division; which has decisively helped the solar power industry.

 The recently proposed draft Electricity Act (Amendment) Bill, 2020 [16] by the Ministry of Power; feels like a positive development and can conceivably acquire some genuinely necessary changes that the sustainable power source division has been looking for. Cost-intelligent tax, disentanglement of duty structure and decrease of cross endowments is a green light for the development of the part. The presentation [17] of a National Renewable Energy Policy for the advancement of sustainable power sources and determining renewable purchase obligations is in accordance with the nation’s commitments towards carbon reduction. While there is an observable aim to address the significant obstructions, lesser ambiguity in scenarios, such as, distinction between distribution franchisee and appropriation sub licensee; mandating security in payment and jurisdictional lucidity between regulatory commissions and contract authorisation authority is additionally required. It is vital for MNRE to encourage the convenient goal of all force majeure and time expansion claims for supply chain and manufacturing. The Government likewise needs to offer help to producers of solar power with liquidity by providing financial incentives in accordance with the drawn-out objectives. This is likewise an exercise for organisations to not depend entirely on one nation for their specialised hardware and move towards being more domestically expanded for production of necessary equipment.

 This pandemic has constrained us to re-examine our basic strategy and has revealed an insight into the issues that were easing back the development of the solar industry in the nation. On the off chance if we focus on schedule and on building a green and practical recuperation plan, the division can conceivably ricochet back, starting a trend for different economies to move towards maintainable power sources for financial and natural development.

These steps are also indicative of India’s plan to become ‘Atmanirbhar’ and dissuade power producers from procuring foreign equipment. The Government for the purpose of making the solar sector resilient to future supply shocks – is in talks to announce incentives for manufacturing solar PV cells and modules in India.

The Government’s plan to make India self-reliant in production of solar equipment is definitely needed for the solar industry in the long run. However, in the shorter run, making imports costlier might end up hurting the ongoing solar power projects.

 About the Author 

 Guranpreet Sarna is an Associate Partner at Dhir & Dhir Advocates and Solicitors, New Delhi.

He has been recognised as a ‘Rising Star’ by Legal 500 for the Projects, Infrastructure and Energy Law category. He also serves on the IJPIEL’s Board of Advisors.

 

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Editorial Team

Managing Editor: Naman Anand

Editor-in-Chief: Akanksha Goel

Senior Editor: Varun Pandey

Associate Editor: Mitali Kshatriya

Junior Editor: Janvi Johar

 Preferred Method of CitationGuranpreet Singh Sarna, ‘Effect of the COVID-19 Pandemic & Indo-China Border Tensions on Solar Power Projects in India: A Brief Perspective’ (IJPIEL, 7 October 2020)

 <https://ijpiel.com/index.php/2020/10/07/effect-of-pandemic-and-india-china-border-tensions-on-solar-power-projects/>

 End Notes:

 1 http://cea.nic.in/reports/others/planning/rpm/underconstruction.pdf

 2 https://www.theweek.in/news/biz-tech/2020/06/18/economic-impact-of-india-china-conflict-why-there-wont-be-just-one-loser.html#%3A%7E%3Atext%3DThe%20numbers%20clearly%20show%20India%27s%2Cwill%20substantially%20hurt%20Indian%20businesses.%26text%3DCiting%20Gateway%20House%20research%2C%20CNN%2CIndian%20tech%20startups%20since%202015

3 https://www.doe.gov.in/sites/default/files/Force%20Majeure%20Clause%20-FMC.pdf

 4 https://mnre.gov.in/img/documents/uploads/file_f-1584701308078.pdf

 5 https://mnre.gov.in/public-information/current-notice

6 https://www.merc.gov.in/faces/merc/common/outputClient.xhtml

 7 https://www.merc.gov.in/faces/merc/common/outputClient.xhtml

8 https://www.indiaratings.co.in/PressRelease?pressReleaseID=52516&title=FY21-Mid-Year-Construction-Outlook%3A-Recovery-in-Project-Execution-Key-to-Stable-Performance

 9 https://www.pv-magazine.com/2020/09/28/solar-projects-under-construction-face-uncertainty-in-india/

10 https://www.prsindia.org/report-summaries/impact-chinese-goods-indian-industry

 11 https://powermin.nic.in/sites/default/files/webform/notices/ORDER.pdf

 12 https://powermin.nic.in/sites/default/files/webform/notices/ORDER.pdf

 13 https://energy.economictimes.indiatimes.com/

 14 https://energy.economictimes.indiatimes.com/news/renewable/opinion-covid-19-the-road-ahead-for-indias-solar-power-sector/75890415

 15 https://www.pv-tech.org/news/indian-renewables-enshrined-as-essential-activity-during-national-lockdown

 16 https://www.prsindia.org/billtrack/draft-electricity-amendment-bill-2020#%3A%7E%3Atext%3DSources%3A%20The%20Draft%20Electricity%20(Amendment%2C)%20Rules%2C%202020%3B%20PRS.%26text%3DThe%20Act%20empowers%20SERCs%20to%2Cregulations%20on%20tariff%2Drelated%20matters

 17 https://mnre.gov.in/solar/current-status/