India, one of the top three recipients of solar energy is the world, is expected to have solar power potential of more than 50,000 MW in the next 15 years. The Jawaharlal Nehru National Solar Mission has targeted 22,000 MW of solar capacity by 2022, with close to 95% based on photovoltaic (PV) technology.
India’s solar equipment export stood at $500 million in the financial year, 2011-12, but exports plummeted to $80 million in 2012-13. Today, over 1000 MW of solar projects lie stranded, while we have added only around 1000 MW each in the last two years – less than half the total targetted by central and state governments. So, how did it come to this?
Dump Slump
In May 2014, the Indian Commerce Ministry officially recommended an Anti-Dumping Duty on solar cells and modules imported from the United States, China, Malaysia and Taiwan. In addition, a 2012 Domestic Content Requirement norm mandated that 30% of total solar capacity under phase 2 of JNNSM – around 375 MW – must use domestic solar equipment. These two conditions, especially ADD, have placed manufacturers and power producers in direct opposition.
Solar equipment manufacturers claim ADD will make Indian manufacturers globally competitive, while power tariffs that end consumers pay will only rise by 6-8% (Rs 0.4-0.55), with current solar tariffs at Rs 6.50-7.50 per unit. If an anti-dumping duty is not implemented, manufacturers warn that there will be job lay-offs.
“The Indian solar PV manufacturing industry has already invested close to Rs 10,000 crore and provides jobs to more than 25,000 employees,” said Deepak Puri, Chairman & Managing Director of Moser Baer Solar, one of India’s biggest solar manufacturers, “with total installed capacity of 1200 MW of cells and more than 2000 MW of modules. The government should implement Anti- Dumping Duties which would help in unlocking a huge amount of public finance.”
Tariff Hike will be passed to the End User
Of course, solar power producers are keen to ensure that ADD is not implemented: the cheaper they are able to procure panels, the higher their own margins. If ADD is passed, power companies will pass the additional cost onto the consumer – this is the current practice in the industry – raising end user tariffs by at least 10%. Producers allege ADD only helps a small clique of big manufacturers who make their own solar cells, while up to 80% of manufacturers import solar cells to assemble into modules, and would be hurt by an anti-dumping measure.
Producers lament that numerous solar projects have been won on wafer-thin margins, so an 8-10 % increase in costs will make many projects unviable. The worst fear is a wave of project cancellations, which will shrink equipment demand, leading to job losses.
“Manufacturing accounts for only 30% of jobs while 70% of jobs are generating in downstream activities like installation, and so on . Abandonment, suspension or postponement of planned programs will prevent these jobs being created,” says Vineet Mittal, vice-chairman of Welspun Renewables, which recently commissioned India’s biggest solar power plant of 151 MW capacity in Neemuch, Madhya Pradesh.
Structural Reforms
However, the roots of this battle lie in the lack of structural reforms in the industry. India’s government-owned power distribution companies, known as discoms, are heavily indebted. Many state governments have a policy of Renewable Purchase Obligations, under which state discoms must buy a small percentage of their total power from renewable sources. But this is rarely implemented. Experts contend there is no chance of government-owned discoms paying even a 5% higher tariff for solar power.
This is also where a core issue, solar tariffs, becomes contentious. Manufacturers and producers want India to follow a feed-in tariff system, where tariffs are linked to the cost of technology used, and are revised down over time. Yet in its largest phase of implementation the government used reverse auctions, awarding projects for bidders proposing the lowest tariffs.
Secondly, cheap finance remains the Achilles’ heel. While sectors like 5-star hospitality is accorded priority sector lending, solar still comes under the category of overall renewable energy and does not have individual priority status. Thus, interest rates remain way over 10%, making project margins wafer-thin.
“EXIM banks of the exporting countries like US and China support the export by offering low interest loans to the importing producers who can avail benefits of low cost finance,” says Shirish Garoud, Associate Director of the Mumbai-based Energy Environment Technology Development division of The Energy and Resources Institute (TERI).
The third stumbling block is lack of homegrown technology. India relies almost completely on foreign technology, and has negligible investment in solar research. Despite repeated calls for a public-private-partnership model based centers of excellence in solar R&D, there has been no step in that direction as yet.
“Developing a special economic zone for solar manufacturing can be one way to tackle it,” says Garoud. “Solar is abundantly available and we need to focus on securing the technologies for long term energy security perspective.”
Finally, as with any land-intensive industry in India, acquisition of land remains a persisting concern. Experts reveal that the new land acquisition law will be tough to implement in many states while issues of justifiable compensation to landholders, and corruption won’t end anytime soon. Experts and industry have rooted for land banks where advanced land repositories should be maintained for areas best suited for solar plants, but to no avail.
The Budget
A lot was anticipated from the recent budget but the industry has been largely frustrated. Instead of concrete measures, the government has tried to placate all players by announcing zero custom and excise duties for select few raw materials used in solar cell manufacturing and on machinery used in solar plants. Along with this, small allocations have been made for a few government-owned solar plants and for rural solar penetration, which are woefully inadequate considering the total capital and operating expenditure required.
In essence, with no clarity as to whether an anti-dumping duty will be put in place and no move towards structural reforms in financing, R&D, land acquisition and pricing models, India’s solar revolution remains a pipe dream.
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India’s solar equipment export stood at $500 million in the financial year, 2011-12, but exports plummeted to $80 million in 2012-13. Today, over 1000 MW of solar projects lie stranded, while we have added only around 1000 MW each in the last two years – less than half the total targetted by central and state governments. So, how did it come to this?
Dump Slump
In May 2014, the Indian Commerce Ministry officially recommended an Anti-Dumping Duty on solar cells and modules imported from the United States, China, Malaysia and Taiwan. In addition, a 2012 Domestic Content Requirement norm mandated that 30% of total solar capacity under phase 2 of JNNSM – around 375 MW – must use domestic solar equipment. These two conditions, especially ADD, have placed manufacturers and power producers in direct opposition.
Solar equipment manufacturers claim ADD will make Indian manufacturers globally competitive, while power tariffs that end consumers pay will only rise by 6-8% (Rs 0.4-0.55), with current solar tariffs at Rs 6.50-7.50 per unit. If an anti-dumping duty is not implemented, manufacturers warn that there will be job lay-offs.
“The Indian solar PV manufacturing industry has already invested close to Rs 10,000 crore and provides jobs to more than 25,000 employees,” said Deepak Puri, Chairman & Managing Director of Moser Baer Solar, one of India’s biggest solar manufacturers, “with total installed capacity of 1200 MW of cells and more than 2000 MW of modules. The government should implement Anti- Dumping Duties which would help in unlocking a huge amount of public finance.”
Tariff Hike will be passed to the End User
Of course, solar power producers are keen to ensure that ADD is not implemented: the cheaper they are able to procure panels, the higher their own margins. If ADD is passed, power companies will pass the additional cost onto the consumer – this is the current practice in the industry – raising end user tariffs by at least 10%. Producers allege ADD only helps a small clique of big manufacturers who make their own solar cells, while up to 80% of manufacturers import solar cells to assemble into modules, and would be hurt by an anti-dumping measure.
Producers lament that numerous solar projects have been won on wafer-thin margins, so an 8-10 % increase in costs will make many projects unviable. The worst fear is a wave of project cancellations, which will shrink equipment demand, leading to job losses.
“Manufacturing accounts for only 30% of jobs while 70% of jobs are generating in downstream activities like installation, and so on . Abandonment, suspension or postponement of planned programs will prevent these jobs being created,” says Vineet Mittal, vice-chairman of Welspun Renewables, which recently commissioned India’s biggest solar power plant of 151 MW capacity in Neemuch, Madhya Pradesh.
Structural Reforms
However, the roots of this battle lie in the lack of structural reforms in the industry. India’s government-owned power distribution companies, known as discoms, are heavily indebted. Many state governments have a policy of Renewable Purchase Obligations, under which state discoms must buy a small percentage of their total power from renewable sources. But this is rarely implemented. Experts contend there is no chance of government-owned discoms paying even a 5% higher tariff for solar power.
This is also where a core issue, solar tariffs, becomes contentious. Manufacturers and producers want India to follow a feed-in tariff system, where tariffs are linked to the cost of technology used, and are revised down over time. Yet in its largest phase of implementation the government used reverse auctions, awarding projects for bidders proposing the lowest tariffs.
Secondly, cheap finance remains the Achilles’ heel. While sectors like 5-star hospitality is accorded priority sector lending, solar still comes under the category of overall renewable energy and does not have individual priority status. Thus, interest rates remain way over 10%, making project margins wafer-thin.
“EXIM banks of the exporting countries like US and China support the export by offering low interest loans to the importing producers who can avail benefits of low cost finance,” says Shirish Garoud, Associate Director of the Mumbai-based Energy Environment Technology Development division of The Energy and Resources Institute (TERI).
The third stumbling block is lack of homegrown technology. India relies almost completely on foreign technology, and has negligible investment in solar research. Despite repeated calls for a public-private-partnership model based centers of excellence in solar R&D, there has been no step in that direction as yet.
“Developing a special economic zone for solar manufacturing can be one way to tackle it,” says Garoud. “Solar is abundantly available and we need to focus on securing the technologies for long term energy security perspective.”
Finally, as with any land-intensive industry in India, acquisition of land remains a persisting concern. Experts reveal that the new land acquisition law will be tough to implement in many states while issues of justifiable compensation to landholders, and corruption won’t end anytime soon. Experts and industry have rooted for land banks where advanced land repositories should be maintained for areas best suited for solar plants, but to no avail.
The Budget
A lot was anticipated from the recent budget but the industry has been largely frustrated. Instead of concrete measures, the government has tried to placate all players by announcing zero custom and excise duties for select few raw materials used in solar cell manufacturing and on machinery used in solar plants. Along with this, small allocations have been made for a few government-owned solar plants and for rural solar penetration, which are woefully inadequate considering the total capital and operating expenditure required.
In essence, with no clarity as to whether an anti-dumping duty will be put in place and no move towards structural reforms in financing, R&D, land acquisition and pricing models, India’s solar revolution remains a pipe dream.
