Fight for a place under the sun

Domestic producers’ concern over cheap imports v power capacity addition goals

August 17, 2014 10:25 pm | Updated May 23, 2016 04:54 pm IST

DINDIGUL: 06/08/2014: Solar panels, that were installed for power requirements at Sourastra Corporation Primary School at Nagal Nagar in Dindigul, Tamilnadu, on Wednesday. PHOTO: G. KARTHIKEYAN. (Picture with report)

DINDIGUL: 06/08/2014: Solar panels, that were installed for power requirements at Sourastra Corporation Primary School at Nagal Nagar in Dindigul, Tamilnadu, on Wednesday. PHOTO: G. KARTHIKEYAN. (Picture with report)

The solar energy sector in India is on the verge of getting entangled in industry in-fighting over incentives and duties. As the country readies to award the next phase of projects, domestic photo-voltaic (PV) cell manufacturers are demanding protection from imports with an anti-dumping duty. They claim that their capacities are under-utilised because they are unable to match the prices of imported solar modules.

Though domestic PV cell (crystalline silicon) capacity of about 1.2 GW was comparable to overall PV installations in 2013-14, module manufacturers preferred low-priced imported PV cells despite currency depreciation. It is gathered that over half of the projects commissioned under National Solar Mission use imported thin film modules for power generation.

Actually, PV producers focus mostly on the subsidised solar tariff markets in Europe. So, it was driven by international demand much before our solar programme, and not by domestic demand. “In 2013-14, India exported solar modules worth $270 million, up from $107 million in the previous year,” according to Icra

Despite rise in exports, domestic firms suffer from very high excess capacity. Lower capacity utilisation has strained the financial profile of domestic players, who want the government to curb imports for their survival.

Anti-dumping duty

To protect domestic firms, the Union Ministry of Commerce and Industry has recommended a levy of anti-dumping duty (ADD) in the range of $0.11-0.81 per watt on solar cells, modules or panels imported from countries such as China, Taiwan and the U.S. The Union Ministry of Finance is evaluating it now.

The proposal has attracted sharp criticism from many quarters as they point out that it will derail the momentum and undermine investor confidence, leave alone the significant rise in project costs (at least by 70-80 paise per kwh) and making a number of ongoing projects that are still to procure PV modules unviable.

Also, it might result in slower power capacity installation as module prices would go up. “A slowdown in installations also means less power for people who desperately need it and continued power shortages, at a time when consumers, industries and farmers need it most. A kW of power delayed is a kW of power denied to the consumer,” says Raj Prabhu, CEO & Co-founder of Mercom Capital, a global clean energy research firm. Unlike the U.S. or Germany, India’s solar policies should be targeted towards energy generation, ameliorating the country’s power shortages and providing power to millions. With this unique scenario, focus on generating more power quickly and providing it to consumers cost-effectively assumes importance. In this backdrop, ADD is seen as detrimental to the progress of the solar sector at a time when it has emerged as a viable choice complimenting traditional sources in sunny countries like India.

There will surely be pain for project developers who actually invest in solar and take risks to produce power and for consumers who purchase power as the cost of solar increases.

Actually, cheap imports aided the growth of solar power market in the country to boost total installed PV (photovoltaic) generation capacity from a mere 22 MW in 2011 to close to 2.7 GW now. Benefits are also seen from cheap imports as it helps achieve grid parity sooner and much easier.

The domestic PV manufacturing industry is downstream in the PV value chain, with 2.7 GW of module and 1.4 GW of cell production capacities now.

“The domestic industry does not have the scale and nor has the access to a fully developed domestic supply chain, which will enable them to compete against global capacity. For creating a sustainable local production industry, the demand in India has to mature and be free from subsidies,” says Sujoy Ghosh, Country Head-India Region, First Solar.

Due to lack of backward integration, domestic players depend on imported raw material for production. Also, quality of silicon wafers and the technology used in PV cell production are vital in achieving better power output. PV manufacturing is extremely capital-intensive as well as power-intensive. There have been announcements and plans for building integrated PV manufacturing base (including polysilicon, wafers, cells and modules) in the country. “The SIPS policy that was rolled out in 2007 for semiconductor manufacturing has not attracted the investments that it was supposed to. Therefore, an objective assessment of the reasons for lack of interest is essential before we further embark on a new policy for solar. The PV module manufacturing only creates one-fifth of all the jobs in the solar value chain,” states Mr. Ghosh. Also, we have not seen any major investment or deal relating to technology tie-up or acquisition of solar tech firms by Indian companies to move up the value chain.

Tech start-ups

Of course, domestic manufacturing needs to be embedded in the country’s long term strategy, but not at the cost of pulling down the market growth. The government could look at removing all hurdles and import duties on any raw material or component that is used by domestic manufacturers. Also, India is at present witnessing a new entrepreneurial wave and tech start-ups embarking on innovative ventures. The government should support such firms focussing on disruptive technologies in the solar sector. However, Indian Solar Manufacturers Association (ISMA) asserts that duty imposition would not cause severe damages to the growth of the sector. “The impact will be minimal and there will be some short-term pains on account of rise in solar panel prices,” it says adding, “countries which have supported industries at an early stage, have developed competitive advantages.”

It was argued by ISMA that the average price difference between DCR (domestic content requirement) and non-DCR solar bids during Phase-2 of Solar Mission was Rs.1 crore (assuming average project cost of 1 MW solar PV plant as Rs.6.5 crore).

The Centre is now caught in a situation where it needs to strike the right balance between producers’ concern over cheap imports and power capacity addition to support economic growth. There needs to be clarity whether the goal of India’s national solar policy is to boost power generation or to build a manufacturing base. While we focus on aggressively boosting installations and year-over-year growth, there will be a robust, long-term market for all.

Mr. Prabhu states that in most developed countries, favourable policies have actually helped increase solar power generation. Manufacturers in those countries grew due to their unique technology and their ability to compete globally. Also, in Western countries, solar or wind projects are encouraged for environmental reasons. But in India they are needed as an energy source to alleviate power shortage issues. In this scenario, the government has to decide what will be its immediate priority.

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