India Needs to get Serious about Solar Industry

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“There is an ample case for having solar renewable energy as a key component of the energy mix that India is looking at,” Ashwini K Aggarwal, Director – Government Affairs, Applied Materials India Pvt Ltd

Few weeks ago we had the massive power outage due to grid failure. Majority of the states in the country were crippled and more than 600 million people in the populous northern and eastern regions including the national capital Delhi and major cities like Kolkata were without power for many hours. Around over 300,000 passengers were stranded in over 300 trains across eight states after the northern and eastern grids failed, crippling operations across six railway zones in the country.
Purportedly, the grid failure happened because of excess power withdrawal by some states. It underscores the energy  crisis that India is sitting on.
There is an ample case for having solar renewable energy as a key component of the energy mix that India is looking at.

Banking on sun

Solar renewable is inexpensive and uses a freely available natural resource for most parts of India. It is affordable and getting cheaper – the solar module rates have dropped 70 percent and the technology is scaling up efficiencies and
moving rapidly towards grid parity. And it is a green option – unlike the coal burning power station or the diesel guzzling generating set!
Solar energy powered 50 percent of Germany’s midday electricity needs on May 26, 2012 – producing more 22GW of energy. That’s the equivalent of 20 nuclear power plants. If solar can supply half the energy needs of the world’s
4th largest economy on a given day, it could certainly play a bigger role in India’s energy future.
Definitely, the Jawaharlal Nehru Solar Mission (NSM) has laid a roadmap to a 22GW solar capacity in India by 2022. The response to the programme in phase 1 has made the ministry project a 10 GW of installed capacity in India against its original plan of 3GW grid connected+ 1GW off-grid. The 6GW growth is primarily visualised from state led initiatives.
On ground, Gujarat anchored the largest installed base of 450MW by end May – a visible success at the dedication of the installed capacity at the Charanka Solar Park earlier this year. However, NSM falls behind with a modest 140MW installed in the phase 1. Batch 2 Phase 1 NSM projects (total capacity allotted is 350MW in Nov 2011) received attractive feed-in tariff rates starting from Rs.7.50 to Rs.9.50/- per unit.
However, batch 2 phase 1 NSM project developers had a double whammy hitting their projects – Rupee depreciated from Rs.43/Dollar to Rs.56/Dollar! Also, the March fiscal budget marginally increased the service tax to 12.5 percent.  The reverse bidding program in the National Solar Mission had dropped the FIT rates down in anticipation of progressive fall in the module prices – however, the rupee depreciation neutralised any commercial advantage there. At this stage, the financial closure deadlines for the batch 2 projects are just finishing and only a handful of projects have publicly reported closures. This lack of visibility is ominous and of some concern.

Recommendations for Solar Industry

• Develop technology neutral policies – and let market forces address the technology issue.
• Promote free and fair trade. Safeguard duties sought by Indian Solar manufacturers’ Association is a sovereign issue – and will be largely influenced by the global trade war reality. However, safeguard / Anti-dumping duties are not the best way to promote an industry and should at best be a short-run step.
• It should define standards in the sector and restrict imports that do not meet the standards.
• Review appropriate enablers for the industry to neutralize disabilities for the industry in India.
• Review financial enablers for the sector – both for the developers and the industry. Limited finance is the single biggest hurdle to the 12th plan period vision of 10GW capacity.

 Can Indian Industry compete?

A typical argument from the proponents of imports is that India cannot deliver the quality or quantity required to power the solar goals of the NSM. However, they do omit the fact that the Indian solar industry came into existence by exporting products to Europe and USA. In fact, the 65 solar factories in India represent a capacity that delivers the visible demand for India and more.
What is relevant is that the Indian manufacturers will export and there will be competition locally from imports – and this is healthy both for the nation and for the industry. The issue, as per Mr S. Venkatramani, Indian Solar Manufacturers’ Association, is not imports (free trade) but a free and fair trade! When peer nations subsidise capital and offer subsidies, it drives the local industry – and the banking system sick!
Actually, it is now established that we have a significant advantage in our cost of HR capital – our labour is decidedly cheaper than China.
Our weak rupee is strength for Indian manufacture. C-Si PV module making is a relatively labour intensive process as is EPC execution at the developer site. India clearly has a fighting chance in the solar value-chain. There is some concern on the lack of solar supply-chain in India, our regulatory disabilities and cost of financial capital. Actually, a smart  policy design that enables selective in digenisation can give India the best of both worlds.

Policy Options and recommendations

India has to decide whether it wants to drive Solar industry through imports or enable local industry to come up. If we are looking at a pure play import model, we have to look at $20 billion of foreign exchange for 12th plan 10GW till 2017! Also, there is the larger issue of India’s self-sufficiency in solar sector and the loss of jobs in an incrementally tech intensive area to imports.
The US and European anti-dumping petitions will mean that there will be opportunities for Indian manufacturers’ abroad. Not only will this increase the effective addressable market, it will also bring investments into the Indian Solar industry. Therefore, with the right policies the government can see the Indian solar industry rise phoenix like – and shine again!

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