The country's solar energy initiatives will face a setback as the government has proposed import duty on solar panels in the budget for fiscal 2017-18.

Imports of solar panel, the

main component of a solar power system, will be subject to 10 percent customs duty, VAT and other taxes, totaling an additional cost of 37.5 percent in the next fiscal year, whereas the sector has been enjoyingzero duty.

The move will escalate costs and affect solar energy ventures, which have already been planned and are being set up, such as expansion of solar power plants connected to the national grid, plants being installed for irrigation and solar rooftop systems, stakeholders said yesterday.

"The whole sector will be affected. It is like penalising the whole nation," said Dipal Barua, president of the Bangladesh Solar and Renewable Energy Association.

Finance Minister AMA Muhith has proposed imposition of duty on imports of solar panels amid demands for protection of local solar panel assemblers who have to compete with cheap imported products, particularly from China. Imported panels are nearly 10 percent cheaper than those locally assembled, with zero import duty in place.

Import duty on solar cells has been kept zero for the next fiscal year as well.

Those who install solar power systems argue that

nearly half of the country's nine assemblers are out of production and the rest can meet only 10 percent of the annual requirement for solar panels of 100 MW.

And the demand is growing due to rising interest of the private sector in establishing solar power plants, generating electricity from rooftop solar systems and shifting to solar-based irrigation and mini-grids.

The government has also been encouraging other uses of solar power such as solar pumps and solar home systems in the areas that have remained off the power grid so that the dependency on fossil-fuel-based electricity can be reduced, according to sources in the energy sector.

Over the last two decades, Bangladesh has made huge progress in making popular the use of solar home systems in the areas having no electricity connection, thus ensuring that 45 lakh homes get solar power. These measures benefitted three crore people, including children who can study using light from solar power, Dipal said.

"Bangladesh has largest solar home systems in the world mainly because of zero duty on import of solar panels since 2009."

Moreover, solar-powered irrigation system has gained popularity.

The country aims to generate 10 percent electricity from renewable energy by 2020 from present 2.86 percent of 15,594 MW power generatingcapacity.

Already, over 600 solar irrigation pumps have been installed and more to come to cut dependency on electricity and diesel used to operate more than 16 lakh tube wells and pumps for irrigation.

According to Dipal, president of the solar energy association, local assemblers are yet to be equipped to make panels that can be used for irrigation.

Solar panels will also be required to install on rooftops and for setting up mini grids and street lights, he said. The proposed import duty will lead to spiraling of the prices of solar panels that cost more than half of what is spent on installing solar systems.

The increase in cost will affect the government's bid to buy electricity from private solar power plants connected to the national grid, insiders say.

The government has issued Letter of Intent (Lol) to buy 830 MW of electricity from grid- connected solar power plants. Power purchase agreements have been signed for 302 MW, according to Sustainable and Renewable Energy Development Authority (SREDA).

"If the duty comes into effect, we will face difficulty. We may have to renegotiate all the contacts we have signed so far. The price of solar-panelbased electricity will increase," said Siddique Zobair, a member of the sustainable energy authority.

Entrepreneurs, who have been

showing interest in installing solar panels on rooftops of their factories, will not go ahead with the plan due to the price hike, said officials of Infrastructure Development Company Limited (IDGOL).

"Entrepreneurs will feel discouraged," said IDGOL Chief Executive Mahmood Malik.

It is difficult to make solar irrigation projects viable even after the government bears 50 percent of the installation cost, he said, adding that import duty would make the situation more unfavourable.

It may be tough to attain the 10 percent renewable energy generation goal by 2020 after imposition of the import duty, Siddique said, suggesting that import duty on solar panels should be zero as it is now.

The government should support local manufactures in other ways such as tax exemption, he added.

Dipal suggested giving incentives to domestic solar module makers for exporting products.

The government can also use a share of locally-manufactured solar panels for its programmes like Test Relief and offer rebate, he said.

Munawar Misbah Moin, president of Solar Module Manufacturers Association of Bangladesh, said local manufacturers were calling for government support since imports of cheap and sub-standard panels were hurting their businesses worth Tk 200 crore.

Panels are imported from China where exporters enjoy 17 percent incentive, he added.

Local manufacturers also urged the government to buy locally-made solar panels for use under the Test Relief and Food for Work programmes.

A minimum price gap should be maintained between raw materials and complete products so that local manufacturers can sustain their business.

"The duty hike will help the local industry^. The government should have a comprehensive policy to help the local industry thrive," Moin said.