Opinions of industry players when queried if companies should opt for local manufacturing or import, and what India ought to do to support manufacturing... As told to R Srinivasan.
Should foreign companies planning to set up base in India go in for local manufacturing or should they initially import and then set up plants later?
The policy framework within the Jawaharlal Nehru National Solar Mission (JNNSM) rightly mandates that only Made in India solar modules can be used in JNNSM Phase 1 Batch 1 projects (2010) as long as they are using crystalline silicon (C-Si) technology, which is the globally dominant technology accounting for 85 per cent of the global market and almost 100 per cent of the Indian market. This mandate will cover all other technologies (such as thin-films) in JNNSM Phase 1 Batch 2 projects (in 2011). In JNNSM Phase 2 (2013-2017) the Made in India clause will be extended to PV cells.
The JNNSM policy creates the necessary conditions for solar photovoltaic manufacturing and gives time to expand it to cells in a calibrated manner. This is a signal to potential investors to come to India and set up manufacturing bases here, not only for modules and cells but also for upstream (polysilicon, wafers) and downstream [balance of systems (BOS), ie, inverters, frames and fixtures, etc].
Already many international players have announced plans to enter India even as existing Indian players ramp up capacities to cater to the growth in demand. This shows that the Made in India mandate is having the right effect. As the manufacturing base develops, it will create employment, promote the development of SMEs in the supply chain and spur innovations and R&D. This will provide the foundation to meet JNNSM targets within the given time-frame.
We have a manufacturing concept based on building prototypes and low volume series in our European factories. When volume deliveries to India and cost advantages so dictate, local sourcing and manufacturing should be considered. So initial import is the proper way to grow and start a business here.
The company's production concept enables manufacturing localisation into India as soon as business is available for local deliveries. It also enables possible future exports from here.
Indian module manufacturing companies are investing in capacity expansion as the condition of domestic content in JNNSM guidelines seems to support domestic manufacturers to a great extent. While global module prices are plummeting, the serious fall in global demand for PV modules due to tariff-cuts and rapid expansion of over 400 module manufacturers worldwide is putting module prices under pressure.
Oversupply, coupled with the global financial crisis, is hitting the industry hard. This poses a threat to export of Indian solar modules. Manufacturers already have many megawatts of high quality modules in stock. At the same time, their investments in capacity expansion require high levels of cash. With only a tiny domestic market, a pole position in the domestic market brings a clear advantage compared to foreign companies trying to find their way in this unique country. Foreign firms trying to enter the market should try to figure out the possible local connection to step into.
What measures should India adopt to match China in supporting local manufacturing?
Comparing India and China is like comparing apples and oranges! Structurally, we are two completely different economic and political systems and this has a direct bearing on costs and prices. For example, the commercial rate of interest in India
is above 12 per cent while it is less than five per cent in China. That's a straight disadvantage for Indian manufacturers.
As for measures that India should adopt, the first is to accelerate the decision making and implementation of schemes and projects. The government launched the Special Incentives Packages Scheme (SIPS) under which it proposed to provide 20-25 per cent support to projects which involve investment of Rs 1,000 crore. It is more than three years since the scheme was announced and almost one year since the projects were shortlisted, but these projects are yet to start. In China, on the other hand, it is possible to set up a 500 MW solar PV manufacturing unit within six months! Also, the centre should enforce the mandatory purchase of renewable power by utilities to promote the generation of RE sources and upscale this in a time-bound manner.
This will then have a cascading effect of promoting local manufacturing also.
The availability of high quality subcontractors and a favourable business climate are two key factors in attracting manufacturing industry to India. The government needs to be open to new technologies and to make it easy for foreign companies to operate in India. The government should also encourage localisation of manufacturing and sourcing into India for example in the form of special duties to help import high quality components and assemblies for solar and wind applications. These components are not yet available in the Indian markets.
China will continue to manifest its dominant role as the world's solar factory and solar manufacturers, particularly from Europe, the USA and Australia, will have to continue to recourse to Chinese producers if they want to survive in a price-competitive solar market.
Observations of the Chinese solar PV markets have shown that the comparably low costs of production increasingly couple with technological reliability and efficiency. "Solar Made in China" is less and less becoming a qualitative risk but rather an opportunity to do solar PV investments at reasonable prices.
A stronger domestic market could propel India into a better position than China, where production of modules is now 99 per cent dependent on exports to Europe and the USA. To achieve this, India needs a strong PV industry lobby and platform, which could inform the centre about the delicate global market situation and what is needed to save its own industry.
A strong domestic market could prevent Indian manufacturers from collapsing as competition in European markets increases. The energy sector holds the key in accelerating economic growth in India. With the targeted GDP growth rate of eight per cent, the energy requirement in India is expected to grow to around six per cent pa over the next few years, which is a four-fold increase over the next 25 years. It is only a matter of time before the Indian PV market flourishes.