India’s Solar Manufacturing versus Generation Tussle; Why one cannot be compromised at the cost of the other

June 2021

IS SUNLIGHT THE ‘NEW’ OIL?

A few weeks ago, Fourth Partner Energy’s Co-Founder, Vivek Subramanian was invited by the Madras Management Association to talk about Sunlight: The new Oil – and through the course of conversation it became evident ‘Solar Energy’ could very well become the gamechanger across global economies, not merely because of its value proposition of decarbonization, but also because of it being the most cost-effective, efficient and abundant source of electricity. With the climate crisis looming large, it is little wonder that China – currently the leader in solar energy supply chain is enjoying its status as a dominant energy player in the global arena.

India has been recently ranked 3rd in terms of renewable energy potential – with the government setting lofty targets for solar and wind power, as well as being signatory to the Paris Agreement. However, for it to achieve ‘aatmanirbharta’ or self-reliance in terms of solar power generation, exponentially scaling up its domestic manufacturing capabilities is inevitable. However, it must be taken into cognizance that these capabilities cannot be built overnight. China held merely 2% of the world’s solar manufacturing capacity in 2003, it has taken two decades for it to reach the current status of 80%. It is crucial to also realise that in order to become a solar manufacturing behemoth, India cannot forego its potential as a leader in solar power generation.

INDIA’s SOLAR STATISTICS: A SNAPSHOT

According to the Ministry of New & Renewable Energy (MNRE) – India’s current manufacturing capacity stands between 10-15 GW for solar modules and ~2.5-3 GW for solar cells. The country currently has an installed solar capacity of over 40 GW and is targeting nearly 280 GW cumulative capacity by 2030. Evidently, relying on boosting local manufacturing alone will not be sufficient to meet the targets set by the government. In FY20 alone, data indicates that India imported solar components worth $2.5 billion. Almost 80% of India’s solar imports today is met by China and any reduction in import dependance will have to happen in a phased manner.

CURRENT DUTY STRUCTURE ON IMPORT OF SOLAR MODULES

Presently, the SGD on solar cells and modules from China, Vietnam and Thailand currently is at 14.50% until July 29, 2021. Earlier this year, Finance Minister Nirmala Sitharaman’s budget also made it clear that Basic Customs Duty of 25% on solar cells and 40% on solar modules will come into effect 1st April 2022; levied on imports from across all geographies.

However, it is the lack of clarity and any official notification from the Commerce Ministry or DGTR on what happens to the duty structure in the interim, i.e the period between August 2021 and March 2022 that is a cause for concern. The industry is hopeful and expectant of a 9-month duty-free window for procurement of modules – where SGD will lapse and before BCD kicks in. This will tremendously help stabilize a segment that has been hit by a triple whammy of increasing module prices, restrictions on net-metering and a devastating pandemic. Official notification of the same will be essential for developers to negotiate and close PPAs with clients, plan raw-material procurement and ensure that solar energy capacity addition does not take a hit.

WHY SHOULD THE GOVERNMENT AVOID ANTI-DUMPING DUTY?

We understand there is a push from stakeholders like manufacturers for the government to consider protectionist policies in the interim period as well – like extension of the SGD or imposition of an anti-dumping duty. We urge policymakers to not resort to indirect taxation but instead consider investment subsidies, interest subventions, PLIs, GST, concessional access to land and electricity, flexible labour policies etc. as measures to boost local manufacturing of solar equipment.

Any further imposition of anti-dumping duties, or extension of SGD in any form on solar imports is a short-term, piecemeal approach that will only result in a brutal blow to solar developers. It will ultimately derail India’s decarbonization drive and stall the growth in the solar energy sector. The ambitious target of 100 GW of solar power by 2022, will remain but a pipe dream.

BOOSTING INDIA’s DOMESTIC SOLAR MANUFACTURING CAPABILITIES

As India’s #1 distributed solar developer for the C&I sector – Fourth Partner Energy wholeheartedly supports and encourages the government’s intent and initiatives to boost domestic manufacturing of solar equipment. However, we must caution that our local manufacturing capabilities are woefully inadequate and any change in policy to incentivize local manufacturing cannot come in the form of adverse and unrealistic duties on solar developers.

Scaling up domestic manufacturing will have to be a staggered process and cannot happen within a 2 or 3-year time period. An end-to-end solar supply chain and manufacturing ecosystem will have to be enabled and facilitated, to make India more energy independent when it comes to renewables, especially solar power. With battery storage technology becoming more efficient and affordable, the country also needs to begin thinking long-term about becoming a global hub for manufacturing of Lithium-Ion batteries.