The need to encourage manufacturing can potentially displace $15 billion of fossil fuel imports annually by 2030.
According to estimates, India´s trade deficit stands at $140 billion. Whereas considering only energy imports, around $ 170 billion is a significant contributor to the deficit. Ostensibly, solar power has the ability to contribute to 25 per cent on incremental generation by 2030. But, in the absence of manufacturing, India will need to cumulatively import $65 billion of solar equipment by 2030. Experts in the field believe that if the government encourages solar manufacturing, it has the potential to generate employment of 50,000 in the next 5-6 years assuming local manufacturing caters to 50 per cent of domestic market and approx 6 per cent of the global market. India has realised the importance of solar manufacturing but it is far behind other countries. Despite having high solar insolation, India may not be able to harness the energy if for any reason the supply of modules gets impacted because there are chances where key exporting countries absorb significant production, which can be clubbed with sudden increase in prices at a later point of time by the exporting countries. Diplomatic issues with trading countries can also crop up (as evidenced in case of China´s rare earth supply to Japan or supply of gas by Russia to European nations).
A case in point would be China´s embargo on critical rare earth exports to Japan in 2010. Rare Earth Elements (REE) are a critical raw material for Japanese giants like Mitsubishi, Toyota and Sony in hi-tech manufacturing of electric vehicles, wind turbines and defence equipment. Interestingly, China controlled 97 per cent of the global supply of rare earth and Japan imported 80 per cent of its REE requirements from China. However, the South China Pacific dispute in 2010 resulted in Chinese ban of REE to Japan. This hit Japan´s production severely for two months. Japan has now started looking for alternate REE sources and is also exploring recycling.
But even though India has realised the importance of manufacturing and despite the country´s Manufacturing Policy recognising solar manufacturing as an industry, the reality is completely different. In the manufacturing sector, manufacturers (large cap, mid cap and small cap) have invested around Rs 5,000 crore in the last five years. But in the solar space, out of 13 solar cell manufacturers, only three are still producing cells (see graph).
Says Sameer Gupta, Vice Chairman and Managing Director, Jakson Group, ´The manufacturing activities in solar space in India will improve only when anti-dumping is linked with upgradation of technology.´ He adds: ´The government should incentivise the sector to a such extent that it will help in increasing R&D activities.´
To this, Bhupesh Trivedi, President - Marketing, Waaree Energies Ltd, says, ´It depends on what you consider as ´improvement´.´ He adds: ´As an industry and as a consumer, new technologies always create value. We should not be worried about the cost of a particular technology and its obsolescence.´
According to Jagat Jawa, Director General, Solar Energy Society of India (SESI), the lack of manufacturing activities was due to lack of faith in domestic technology from solar power developers and insufficient order book.
Many of the key countries having large solar ambitions have invested in domestic manufacturing. For example, China and other nations are creating large ´solar champions´ in a planned manner as solar energy becomes an increasingly important component of the global energy basket (see case study 1 and 2). Whereas, many manufacturing bases are being planned as integrated solar industries clusters with adequate government support. Here, Indian experts are unable to understand what has gone wrong with Indian solar manufacturers and were rather surprised to know that despite manufacturing capacity and capabilities of Indian makers being at par with China a decade ago, Indian solar manufactures saw a dip in fortunes only over the last five years.
´China is a different phenomenon altogether whereby the government has made solar as its core mantra to get the nation a leadership position in global exports,´ says Vishwanathan Iyer, DGM & Head-Business Development (Solar), West & South India, Sterling and Wilson.
In case of most emerging market nations, the quest for solar is mooted by a dire requirement of quick power generation capacity augmentation to fuel economic growth (in the wake of issues with conventional energy generation capacity expansion) and also as a tool to attract local and foreign investments.
Lack of incentives
Indian manufacturing is competitive but it suffers due to lack of incentives, which has been extended to manufacturing in other nations. There are three main reasons due to which Indian manufacturing suffers: lack of scale, government support and incentives and lastly, under-developed supply chain. As per KPMG, Indian factory sizes are only 1/5th size of the typical Asian factory establishment. In terms of incentives (see table 1), other countries have provided adequate capital subsidies, tax holidays, affordable utility services, long-term low interest rates and R&D grants. To this, Sameer Gupta adds: ´Instead of anti-dumping policy, the government should incentivise the sector to such extent that it will help in increasing R&D activities which will led to advanced technology in this space.´
A source from the Ministry of New and Renewable Energy told Power Today that if Indian solar manufactures could have produced products on par with China, the situation would have been different. But they are tightlipped on why the earlier government did not pay heed to the demand for more R&D incentives.
In an earlier interview with PT, DT Barki, Director (Technical), Photon Solar said that half-hearted implementation of subsidy schemes, unsuccessful policies (such as the REC mechanism) among many other ineffective and inefficient policy frameworks have led to the crippling of the solar PV industry.´
Don´t miss the bus
Experts are of the opinion that if India misses the opportunity to build the industry today, it may not be able to catch up later owing to creation of significant entry barriers. This is a time where the government can act. Considering factors of production, the government can make available land at affordable prices, this will also create chances of future expansion and at the same time the government with the help of private players should develop a pool of skilled workers. The next in line is strategy development, creating more demand with the help of awarding projects and encouraging supporting industries where a network of organised local vendors are created, along with cluster development and developing of research institutes. If these can be taken care of by the government, it is sure that India will certainly not miss the bus.
According to a white paper published by KPMG on solar manufacturing sector, the concern of ´sharp price´ rise or ´inadequate supply´ on implementation of suitable anti-dumping duty (ADD) is misplaced. India is already importing panels from other countries whose prices are not much higher than ADD subject countries (USA, China, Malaysia and Taiwan). Interestingly, the average price difference is only about Rs 10/ watt between non-domestic Content Requirement (DCR) and DCR solar bids under the Jawaharlal Nehru National Solar Mission. Interestingly, Anti Dumping Duty by USA on Chinese panels did not impact the solar energy growth as imports and domestic production easily met the gap.
Overall, the government would be a net beneficiary by encouraging solar manufacturing in India. While the country may suffer a short term impact owing to higher domestic solar panel prices, it will be more than compensated in the medium to long term. And how that would be, let´s have a look at the following.
Rising employment: 50,000 + direct jobs in the solar manufacturing industry by 2022.
GDP growth: With an average of $ 1.1 billion investment every year, incremental GDP growth is expected to far outweigh the loss.
Increasing taxes: Incremental taxes from solar industry profits and income taxes will surpass losses due to ADD by 2019.
Decrease in foreign exchange volatility: More than $15 billion foreign exchange will be saved by 2024.
Case study 1
China: Creating solar national champions
As per the Chinese 12th Five-Year Plan, support will be provided to major enterprises to grow stronger so that by 2015, leading poly-silicon enterprises will reach 50,000 metric tonne per year, and major enterprises will reach 10,000 metric tonnes per year; leading solar cell enterprises will reach the 5 GW level, and major enterprises will reach the 1 GW level. By 2015, in China, there will be one PV enterprise with annual sales revenue exceeding RMB 100 billion, 3-5 PV enterprises with annual sales revenue exceeding RMB 50 billion, and 3-4 enterprises specialising in PV equipment manufacturing with annual sales revenue exceeding RMB 1 billion.
In case of India, it has no strategic vision to develop national champions. China already has 7 of the 10 global solar champions and it is planning to make them even more dominant as solar energy becomes an increasingly important component of the global energy basket.
Case study 2
Solar clusters in Taiwan
Taiwan has developed three solar industrial clusters in Hsin-Chu Science Park (HSP), Central Taiwan Science Park (CSP) and Southern Taiwan Science Park (STSP). The whole solar supply chain is represented in these clusters which accounts for 65 per cent of Taiwan´s total production value. Developing an industrial cluster requires long term government support in terms of policies and infrastructure investment. Taiwan has developed one of the biggest electronics and solar clusters through tax breaks, capital subsidies, massive R&D investments and infrastructure development.
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