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Interaction | September 2015

Integrate the value chain to become true domestic manufacturers

Sunil Jain,CEO & Executive Director, Hero Future Energies

Why are domestic manufacturers unable to improve despite chances?
There is low capital being infused and solar projects have large capital requirements. We are competing with China, where the smallest capacity is 1 GW and every player has at least 3-5 GW installed. But, we can only compete with them if the government gives us similar kinds of incentives.

Also, our cost of capital is very high making us expensive. Everybody is afraid to invest large capital here as the financial viability or competitiveness is questionable. Despite a large programme, there is still no guarantee that our products will be sold. Today, I´m sure that European and other countries are willing to fund these projects at a very low cost. But, dollar fluctuation is not helping.

Are government initiatives supportive?
Government plans and policies are there. But, there is one thing called cost of capital, which the government can´t do much about.
There is no anti-dumping policy as of now and while the erstwhile government was thinking about implementing it, that would have been disastrous for the sector. When we don´t have the domestic capacity and want to put ADD on imports, it would have killed the industry. I think it was a very wise decision of the present government to not go ahead with it and instead reserve capacity for domestic manufacture. It is not very difficult to block capacity for domestic manufacturers.

Will manufacturing shape in line with new solar projects?
Today, the ratio for full project is 55:45, with 55 per cent being imports and 45 per cent being domestic. As of now I do not see domestic manufacturing along side the solar announcements that have been made. But, I believe that 8-10 GW of capacity is a good enough to install manufacturing capacity in India. Compared to the demand, we are way off and that is why we have to integrate the manufacturing from ingot, to wafers, to panels, only after which it would be a true domestic manufacture.

Why is domestic manufacturing is not attracting investment?
This is purely because the world market is very competitive and we have to be sure that we are equally competitive. For e.g., despite having large steel capacity, there is huge dumping from Korea and China, and the government has put ADD there. Similar fears exist for solar manufacturers, because if they are unable to compete with the Chinese, they´ll be in deep trouble, notwithstanding that it is a rough market.

We are not faltering, but the dominance of the Chinese is enabled simply from the kind of subsidies that they get. Besides this, of course, scale of projects and capacity is a very big factor. We are not backwardly integrated and are only manufacturing cell or wire can toda or doing parallel assembly, so there isn´t enough margin to squeeze the costs. Also, there is no large player or big corporate house in the solar sector as such.

But things are changing and because the sector is so capital intensive, we need a big player to come in. If people like Adani or Reliance come into play, then the whole perspective will change and maybe in the next 5 years we can be as big as China market. Also, BHEL entering the solar manufacturing sector is a very positive step, as long as they are competitive, because this is a separate skill set for them.

What would you recommend should be done to counter these problems?
This is a job for the government and the industry to work on together. It is very clear that this industry needs to go large scale, and manufacturing of machinery also needs to be done domestically. Today everything--the entire machinery--is imported. So, the Dollar has already depreciated to Rs 66, and you have very expensive imports on your hands increasing your cost of production; add this to the already high cost of financing. So, this whole recipe of huge financial requirement and high import cost doesn´t make it viable to manufacture locally.

From my point of view, the solution is that the government will have to come up with some interest subvention scheme for solar panels and modules. But, with a condition that there is complete manufacture, and not only assembly. Players should have to make their own cells, ingots, everything, so as to have truly domestically manufactured products. Even today, the ´domestically manufactured´ products are not 100 per cent so, it is only assembled in India. Thus, we have to promote manufacture in India--Make in India.

How optimistic are you about future prospects? What growth do you expect?
If you ask me over the next two years, I expect the growth to be around 50 per cent, so I am not overly optimistic. But, I believe that even if we don´t reach 100,000 MW target by 2022 but by 2025, that is also a very good job.

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