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Interaction | June 2018

18% GST will hit PPPs that are already signed

Pushed by factors like declining tariffs and higher costs, significant changes have happened over the past decade in the engineering, procurement and construction (EPC) sector pertaining to the solar power industry, says <span style="font-weight: bold;">Sunil Rathi, Director, Waaree Energies.<br /> <br /> How has the methodology evolved over the years for the execution of large and small solar projects? </span><br /> Over the last 10 years, the solar industry in India has seen significant change in project execution. Earlier, large projects were executed as turnkey projects, but declining tariffs, higher module costs and other balance of system (BOS) costs, faster completion time required, and delay in financial closure has led the engineering, procurement and construction (EPC) business to separate into multiple segments. This has helped investors reduce costs through cost-benefit analysis, while maintaining quality standards. <br /> <br /> <span style="font-weight: bold;">What are the important elements in this evolution?</span><br /> A new trend that we are seeing in the industry is the self-EPC concept being adopted by many developers to mitigate the risk of low sustainability and reduced quality. In-house EPC capabilities have also offered them flexibility to manage priority based cash flow to achieve completion of date (COD) and reduce the interest during construction.<br /> <br /> The rooftop segment has been a late entrant in the market. IPPs (independent power producers) are trying to maintain the same model for large scale projects. However, priority is given to local installers due to various reasons like faster mobilisation, quick approvals, and lower resolution time of operations and maintenance (O&amp;M) activities. <br /> For captive model, EPC players are pursuing aggressive marketing and business development activities in order to improve their visibility, ensuring higher turnover and margins. Several EPC players have participated in Solar Energy Corporation of India (SECI) model as an independent power producer (IPP) or have associated with IPPs who do not have detailed market reach. This has resulted in higher business opportunities for EPC players, with more orders from developers.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br /> <br /> <span style="font-weight: bold;">What has been your experience in adapting the technology and Balance of Systems for projects in India? What are the challenges you have faced?</span><br /> The solar photovoltaic (PV) industry is continuously evolving. Components manufacturers, under BOS, have come out with unique propositions for faster installation, cost reduction and quality improvement. For example, the string inverter is a major invention that has eliminated the need for a string combiner box or array junction box. The micro inverter is another invention which supports elimination of a large part of DC cable. Compatibility of string inverter and micro inverter with web-based monitoring system has helped in eliminating large size SCADA system, resulting in substantial cost saving.<br /> <br /> <span style="font-weight: bold;">AAR for Goods and Services Tax in Maharashtra has said that EPC activities will be considered as &quot;work contract&quot; and are liable to be taxed at 18 per cent. Do you think it will have an adverse effect on the overall contract agreement?</span><br /> As of now there is 5 per cent GST on work contracts, and the implementation of 18 per cent will further increase costs and have an adverse effect on power purchase agreement (PPAs) already signed. <br /> <br /> <span style="font-weight: bold;">While the big four of customs duty - GST, Anti Dumping Duty and Safeguard Duties - have received enough media coverage, how are interest rates impacting the sector?</span><br /> The solar industry remains financially viable, as prices have remained stable due to technological advancements and good financial engineering. An increase in the interest rates will take the overall cost of ownership high, and may affect growth.<br />
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17 Oct 2016
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