Confronted with ominous and imminent prospects of a chronic power crisis due to depleting fossil fuels and scarce water resources, India is going solar with renewed energy. What this has done though is open up a massive opportunity for importers given the very little photovoltaic cell – the main input in solar panels – manufacturing capacity the country has.

Satyapal Menon | August 2015 Issue | The Dollar Business

Though solar power has been considered an alternative source of energy for over two centuries, it remained consigned to darkness and relative obscurity for long due to pervasive scepticism about its viability in different weather conditions and usability for different purposes. But persistent R&D efforts, driven by a desperate need for an alternative to dwindling conventional sources of energy, have led to solar power finally evolving to become a serious player in the global energy market. Hence, governments across the world have not only started implementing solar projects in a big way, but are also significantly incentivising the industry, given its clean nature. And Government of India is no different.

Home run

Launched on the 11th of January, 2010, The Ministry of New and Renewable Energy’s Jawaharlal Nehru National Solar Mission (JNNSM) has a target of generating 20,000 MW of grid-connected solar power in the country by 2022. Moreover, since the entire mission – right from providing photovoltaic (PV) solar cells to installing and providing grid connectivity – encourages private participation, it represents a fortune for the domestic industry, comprising an entire gamut of players from PV cell and module manufacturers to power plant developers. In fact, JNNSM has reserved 50% of each project under it for bidding under Domestic Content Requirement (DCR). Summing up the opportunity that JNNSM and other government projects have opened up for domestic manufacturers, Ruchin Gupta, Deputy Secretary, Ministry of New and Renewable Energy, says “During the current financial year, around 15,000 MW of tenders will be floated by the ministry, of which, roughly around 2,000 MW is reserved under DCR. So, it should provide quite a big market to local players.” But if you think this would have led to some kind of euphoria among domestic manufacturers, you can’t be more wrong. For, it has actually provoked their ire as they demand that the entire package be reserved for them. This, since they claim lower priced imported modules and cells are killing the domestic industry! No match

Despite policy moves like DCR, India’s PV cell imports are surging, having grown at a CAGR of 31.7% (volume wise) over the last decade! Why? India’s manufacturing inferiority, which is no different when it comes to the solar power equipment industry. In fact, PV cells imported from countries like China are not only cheaper than those manufactured in India, but are also technologically superior. For example, industry insiders The Dollar Business spoke to claim that India just doesn’t have the technology to manufacture C-Si and thin film modules, which are a market favourite, making imports inevitable. One consequence of the domestic industry not benefitting much from the country’s solar push is it pressurising the government to impose Anti-Dumping Duty (ADD) on PV cells sourced from China and the United States. In fact, while such pressure had pushed the government to initiate an investigation, it didn’t yield much. And one of the main reasons offered by the government for not going ahead with the imposition of ADD was its objective of implementing mega solar power projects to provide renewable power to consumers at an affordable cost. Moreover, according to official sources, while existing solar power equipment manufacturing capacity in India is only about that for 700-800 MW, the government’s ambitious plans run into multiple thousand MWs, necessitating a balanced and pragmatic approach from it.

Healthy trend

An interesting aspect of India’s PV cell imports, which probably convinced the government to not impose ADD, is a downtrend in prices. With solar power becoming increasingly popular all around the world, which has led to the production of PV cells at a much larger scale than what used to be the case a few years back, the per unit price of imported PV cells in India is constantly falling over the last few years – from a high of $9.9 in FY2009 to just $5.2 in FY2015. In fact, since FY2012, while India’s PV cell import volumes have risen every single year, value of imports in FY2015 was 37.8% lower than that in FY2012!
Lofty goals

Government of India has its sights on extremely lofty targets for solar power generation in the country in the near future. “We have formally announced 100 GW as the target for 2020. Last year, 1.1 GW of capacity was created, whereas this year, the tendering will be for around 15-17 GW. Though the projects will only show up next year, a lot of ground work is being done. A lot of people have called these targets ambitious, but the way the government is moving ahead with its capacity creation, we will probably achieve the target even before 2020,” Gupta tells The Dollar Business. While Gupta’s optimism seems genuine, the fact remains that as of May 2015, the total installed capacity of solar power in India is just 3,883.5 MW! Of this, as Gupta claims, 1,112.1 MW of capacity was created just in FY2015. But what did it lead to? Imports of 161.7 million units of PV cells worth $838.4 million! If slightly over 1.1 GW of capacity creation can lead to $838.4 million worth of imports, how much worth of PV cells will the country import if it actually manages to hit the 100 GW target over the next five years? Well, to avoid exaggeration, let’s just say, “a lot”!

Insatiable

One impediment for PV cell importers, however, could be the fact that buoyed by the ‘Make in India’ initiative, domestic manufacturers are putting in all their might to scale up production, both in terms of quality as well as quantity. The fact that MNRE’s flagship programme JNNSM has mandated the DCR for 50% of the projects under it makes it clear that even the government wants to encourage domestic manufacturing and avoid a massive drain on the country’s forex reserves. “As part of ‘Make in India’, we want to incentivise manufacturing in India. So, the government has provided the DCR, wherein our tenders are reserved for domestic manufacturers,” Gupta tells The Dollar Business, not mincing words. But even he understands that imports are unavoidable. “Our solar cell manufacturing capacity is only around 1,000 MW. So, inevitably, we have to go for imports,” he adds.

Most of India’s solar power plants are based in the states of Gujarat and Rajasthan, thanks to ideal climatic conditions.

Forever

Environmental concerns over coal mining and fracking, nuclear disasters like what happened in Fukushima in Japan and ever volatile geopolitics over oil has meant that the world is increasingly interested in cleaner and renewable sources of energy. Given the fact that India has the perfect weather conditions required to properly harness solar energy, particularly in the states of Gujarat and Rajasthan, it’s inevitable that the Indian government will do everything possible to meet its target of generating 100 GW of solar power by 2020. Add to this the fact that Indian manufacturing, despite the best of efforts, is yet to rise from infancy, and you have all the reason to believe that the country’s PV cell imports will continue northwards in the years to come. That even the government is not going to create roadblocks becomes clear from the fact that it refrained from imposing ADD. Want more reasons? Despite being cheaper, PV cells imports offer volume-driven margins!  

“We hope to see healthy participation from foreign players in our upcoming tenders” - Ruchin Gupta, Deputy Secretary, Ministry of New and Renewable Energy

] Ruchin Gupta, Deputy Secretary, Ministry of New and Renewable Energy

TDB: How far is the Domestic Content Requirement (DCR) policy helping local component manufacturers of solar power generating equipment? Ruchin Gupta

(RG): The DCR policy has been there for quite some time. In the past, due to a couple of reasons, few imports were allowed under it. But since that didn’t work out the way it was intended to, the present DCR policy talks about 100% indigenous products. During the current financial year, around 15,000 MW of tenders will be floated by the ministry, of which, roughly around 2,000 MW is reserved under DCR. So, it should provide quite a big market to local players.

TDB: What’s your stance on the fact that domestic manufacturers are nursing a threat perception and are demanding the imposition of anti-dumping duty on imports of photovoltaic cells?

RG: The Indian government is quite conscious of the concerns of the domestic industry. In any case, as part of ‘Make in India’, we want to incentivise manufacturing in India. So, the government has provided the DCR, wherein our tenders are reserved for domestic manufacturers. On the other hand, at a personal level, I would say anti-dumping duty shuts off the door for imports, thereby creating a very protectionist environment. This doesn’t help even the domestic industry. However, under DCR, since we are reserving only a certain percentage for domestic players, it incentivises them and makes them more competitive.

TDB: In its guidelines, MNRE has also made provisions for the participation of overseas players. To what extent has this encouraged foreign participation in India’s solar mission?

RG: Earlier this year, foreign developers committed participating in around 60,000 MW of solar power. All our tenders follow international competitive bidding process. We hope to see very healthy participation from foreign players in our upcoming tenders.

TDB: Are all domestic manufacturers dependent on imported photovoltaic cells?

RG: The answer is both yes and no. Our solar panel or modules manufacturing capacity is 2,000 MW, whereas solar cell manufacturing capacity is only around 1,000 MW. So, inevitably, we have to go for imports.

TDB: Which do you think is a bigger factor for rising imports of photovoltaic cells – cheaper prices or lack of domestic capacity?

RG: There are various factors involved here. Firstly, currently, the capacity that we are creating is much more than the present capacity of the domestic manufacturing sector. Secondly, we, essentially, leave tariff to market forces, so as to have a competitive tariff. We also allow international participation and imports. Technology is certainly available in India, but the production capacity at present is much less than the demand. The price difference between Indian and imported products is around 15%.

TDB: How feasible and viable are the current terms and conditions of the ministry for solar power producers?

RG: Whenever we come out with tenders, we ensure that Power Purchase Agreements (PPAs) are fixed for a period of 25 years. This makes the tender bankable and gives certainty to developers. Before we finalise any scheme, we ensure participation from various stakeholders by putting up the draft of the policy on our website. As far as possible, we also try to take feedback from all stakeholders, so that the policy is facilitative in nature.

TDB: Viewed from a long term perspective, do solar power projects in India provide scope for technology up-gradation and value-addition?

RG: We allow repowering of the system. But understand that while we have no issues with technology up-gradation, we have to consider the load factor that has been contracted as part of a PPA. Now, if power generation increases, let’s say after five years, tariff must have come down by then. One cannot get paid at the old rate for the additional power.

TDB: There is a considerable unmet demand for solar PVs, but yet, there are reports of domestic manufacturing suffering from overcapacity. What’s your take on this?

RG: No manufacturer will install capacity keeping in mind only the short term. Remember, what is installed today will be used tomorrow.