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Cover Story | September 2015

Heated argument

While everything seems hunky-dory on the surface, what with the government´s newly announced 100 GW solar target for 2022, one important factor being ignored is the parallel growth of the domestic manufacturing capacity. POWER TODAY talks to the industry players-manufacturers and developers, about their views on the same.

Solar technology has many unique attributes which make it one of the most preferred sources of power, particularly in India, a densely populated country with a high energy deficit - it can be rapidly deployed across most parts of the country, it is modular in nature and it is environmentally friendly.

According to a Bridge to India report, India is perhaps the most exciting solar market in the world helped by rapidly improving the commercial viability of solar PV technology, its huge need for power and of course, its social and environmental imperatives.

The Government of India (GoI) has wholeheartedly backed the renewable sector in India by announcing a target of 176 GW by 2022, of which 100 GW has been allotted to solar, 66 GW to wind and the remaining 10 GW to the other renewable energy (RE) sources like biomass, geothermal and small hydro power projects. The corporates too have pledged huge investments towards this goal.

Besides this, amendments have been proposed to the Electricity Act, including open access reforms and enhanced Renewable Purchase Obligations (RPOs); the solar parks policy removes two key execution bottlenecks-land and power evacuation, dedicated transmission corridors have been set up; the Renewable Energy Certificate (REC) regime has been rationalised, and low cost financing support from bilateral and multilateral agencies has been made available.

However, one concern that Power Today has, is whether India´s minuscule solar PV manufacturing sector-which is currently largely dependent on import of parts-can grow alongside this incredible target?
Hitesh Doshi, Chairman & Managing Director, WAAREE Group states, ´There are challenges in procuring Indian made solar cells, which are around 15-20 per cent costlier and also less efficient as imported ones.´ He added: ´There are also supply constraints on account of limited cell manufacturing capacities in India. Domestic manufacturers who import raw materials face delays at the ports for clearances and logistical challenges in transporting it to the factory. So, these need to be sorted out.´ ´We have only 600-700 MW of operational cell capacity, while module manufacturing capacity is ~2 GW. This has resulted in Indian cell manufacturers monopolising and charging exorbitant prices, making such projects costly, as compared to where open sourcing is allowed,´ adds Sameer Gupta, Managing Director, Jakson Power Solutions.

Make in India
According to the Ministry of New and Renewable Energy (MNRE), solar PV module manufacturing capacity in India touched 2,000 MW (2 GW) in March 2013. (Refer graph: Indian Solar PV growth in MW) Sounds good? Compare this to the might of the Chinese, where each manufacturer has capacities of at least 1 GW.

Points out Sunil Jain, CEO & Executive Director, Hero Future Energies, ´We have to keep in mind that in the long term we have to compete with these Chinese manufacturers (where smallest manufacturing capacity is 1 GW and every player has at least 3-5 GW installed), notwithstanding what we produce and how large the investment is. But, we can only be successful if the government gives us similar kinds of incentives that the Chinese government gives their industry.´

´The solar industry is ruled by capital costs and the impact directly comes from the manufacturing. The problem with our manufacturing is that it is either outdated in terms of technology or not, big enough to compete with the cost. This restricts the pricing and domestic manufacturers are unable to compete with large scale Chinese manufacturers,´ shares Krishnan Rajagopalan, Head - Solar Business, Anchor Electricals Pvt. Ltd, Panasonic Group.

In all this, a big question raised is also about the ´manufacturing´ done in India. Many of the so called ´manufacturers´ might as well have a caveat added to their products-parts imported, only assembled in India.

We lack integrated manufacturing capacity, starting right from the polysilicon to wafer to cell to module. What we have right now is only the latter two and in very limited capacities. But we need to look at large companies in the US or China particularly, as they have vertically integrated companies (in GW scale), which helps them control manufacturing quality as well as the cost.

The Chinese have fully integrated production lines all over the country and they are highly subsidised, which is why they are successful. Also, we have no large player or corporate house in the solar sector. We also lack backward integrated and only manufacture cells or wire can toda or do parallel assembly, leaving no margin to squeeze the costs.

Adds Jain, ´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 manufacturing in India-Make in India.´

MNRE pegged India´s manufacturing solar cell manufacturing capacity at 848 MW at the end of 2012, while the Ingot and Wafer manufacturing capacity was ascertained to be 15 MW-with no Polysilicon production capacity.

While companies like Lanco had plans for an integrated PV manufacturing facility, the plan appears to have been shelved, given the market turmoil.

The same seems to be the case of Yash Birla group. The only company that is seriously exploring the option of setting up a Polysilicon plant is the public sector company, Bharat Heavy Electricals Limited (BHEL).

However, Doshi was more upbeat. ´I do not completely agree that we are not attracting investment. Although, I would agree that the progress has been a bit slow,´ he says.

While, the target of 100 GW would need an investment of over USD 100 billion, over a period of the next 8 years. This sector will only attract investors with a long time perspective for India as an investment destination.

Among the recent announcements, sizable investments have been committed by international investors-Softbank, is considering investing USD 20 billion in India; Sun Edison has reported investment plans of USD 15 billion by 2022; and Rosneft is interested in investing for 10 GW of solar projects.

The good news is that, our government has shown determined support for solar energy, which will help translate plans into action. (Refer graph: Expected drop in solar production costs) Anant Geete, Minister of Heavy Industries and Public Enterprises, Government of India recently revealed that BHEL plans to set up renewable manufacturing unit in Bhandara, Maharashtra, ´BHEL will diversify its presence into renewable manufacturing, for which we have already taken major initiative by setting up a solar cell manufacturing unit in Bhandara, Maharashtra, with an investment of Rs 2,700 crore.´

The Cabinet has given in-principle approval for this project, and a proposal has been sent to the Finance Ministry for approval, for which Geete expects a favourable response in next two-three months.

´The aim is to give competition to Chinese importers. Since the market has been captured by them, our ministry is pushing BHEL to produce in India and make the products available for Indian power companies,´ he states.

There is also talk of Adani venturing seriously into the field and having mature talks with Japan based Softbank and Apple parts maker Foxxcon, for an investment of $2 billion.

Mission Impossible?
India has an excellent solar resource, depending upon which the government has a vision to garner it into a compelling method of driving economic, energy, and environmental goals. For this, MNRE also adopted policies like reverse tariff auctions that encouraged the industry, while decline in the global prices of solar modules and optimisation in BOS costs further supported the build-out of domestic generation capacity as PV energy prices declined sharply in this period.

But there still seems to be a doubt about this renewable mission being successful. Will domestic manufacturing shape up in line with new solar project announcements; especially as in the current scenario this ratio appears much skewed? If target is 100 GW by 2022, does India have enough domestic manufacturing capacity to supply the required modules for these projects? Opines Vikas Mathur (Head - Business Development), Rays Power Experts, ´We are still not competitive due to high manufacturing costs. Government should also enhance the power evacuation infrastructure, solar projects need to be integrated with the existing system and funding from the banks should be on priority. Land availability also needs to be overcome to make manufacturing lucrative.´ Raveesh Budania, Partner, Headway Solar spoke about DCR, ´The ratio reserved for DCR has shrunk so that domestic manufacturers don´t complain about having very few projects. But, the government has given open category a free hand. I think the government has taken a very good, liberal approach and by putting up DCR in place, is ensuring that we have upstream capability and our industries don´t die out.´

While domestic module manufacturing capacity is increasing albeit slowly to keep pace with the new government announcements, the major point missed by most players is that modules and inverters are not the only requirement for setting up solar power plants. There is huge requirement to ramp up capacities for manufacturing other components such as module mounting structures, string combiner boxes, HT & LT panels etc. (Refer graph: India value chain) Besides, alongside the government´s target, the MNRE has also set an ambitious target of 4-5 GW of solar PV installed integrated capacity by 2022 under the Jawaharlal Nehru National Solar Mission (JNNSM). In line with which the JNNSM introduced the domestic content requirement (DCR) in the first phase of the mission. However, states like Gujarat, Rajasthan, Tamil Nadu, etc., have not mandated any DCR in their policies.

Furthermore, DCR itself has had an underwhelming effect due to a loophole. In the Batch 1, Phase 1 of the JNNSM, it was mandated that all the crystalline silicon (c-Si) modules used in the projects should be of Indian origin. For the Batch 2 of the Phase 1, this mandate was extended to solar cells also.

However, Thin Film PV technology was exempt from the DCR, probably because there were not many domestic manufacturers, except MoserBaer, this led to a majority exporting thin film modules as they came with cheaper financing options facilitated through the EXIM banks of some of the module originating countries. The result was obvious-unlike almost any part in the world, Thin Films had a higher market share than c-Si technology in India.

According to the MNRE, a total of 366 MW aggregate capacity had been commissioned under JNNSM up to January 31, 2013.

Of these, only 130 MW of projects were using indigenous solar cells/modules technologies. In the Batch 2, more than 60 per cent of the 340 MW opted for Thin Films. In fact, First Solar is estimated to have about 20 per cent of market share in the Indian PV module market.

The MNRE, acknowledging the lack of effectiveness of DCR in Phase 1, has announced that 75 per cent of the 750 MW projects to be allotted under the Batch 1 Phase 2 of the JNNSM will be required to use local content.

Anti-Dumping Policy
The US and European Union have imposed Anti-Dumping Duties (ADD) on Chinese solar imports in May 2012 and June 2013, respectively, to which the Chinese responded by increasing the import duties on US and Korean Polysilicon.

Dumping in its legal sense, means export of goods by a country to another country at a price lower than its normal value. Just because a product is being sold in India at a price that is cheaper than what the domestic industry is selling it for, doesn¦t mean that it is being dumped.

The Solar Manufacturer´s Association (SMA) filed a petition alleging dumping of imported solar PV modules from China, Taiwan, Malaysia and the USA, following which during the preliminary hearing on July 18, 2013 others filed a fresh petition to include manufacturers from EU and Japan, prolonging the investigation and its outcome.

The anti-dumping allegations have put the domestic manufacturers and the project developers on two sides of the conflict. While the project developers oppose any form of anti-dumping duty imposition, since that will increase the project cost and reduce options available for sourcing quality products, domestic manufacturers counter that by saying that they do not have a level playing field due to the unfair trade practices adopted by certain other countries.

´Deciding against ADD has obviously helped the industry. Today, the same modules supplied by Chinese, Taiwanese or Malaysian manufacturers here and in the European and the US markets, are sold there at about 20-25 per cent higher. But we are able to achieve the tariff parity of less than Rs 6, giving us a huge cost benefit,´ Rajagopalan adds.

The bottom line is that the outcome of the anti-dumping investigation will have a significant impact on the solar sector in India.

´The latest survey by MNRE indicates that operational cell manufacturing capacity in India is 297 MW. How would this capacity serve a market that needs at-least 2,000 MW/year of new capacity if all the Central Government programs are to be served?´ questions Sujoy Ghosh, Country Head, First Solar, India Region.

The 1,304 MW of domestic manufacturing capacity that uses imported cells will also be exposed to the same anti-dumping duties on input costs, making them non-competitive. India today has one of the highest costs of capital, a very complex investment and tax regime and a very unreliable power supply (in most parts of the country), compared to other countries which are making big manufacturing bets in PV (Saudi Arabia, China, Brazil).

Duties in the US and EU haven¦t incentivised Chinese manufacturing. Fundamental and long-term market indicators are necessary to justify manufacturing investment. Government policies that can be changed overnight will not encourage investment. Bridge to India also felt that rejection of the proposal to implement anti-dumping duties has been the most political and pragmatic of the decisions.

It was political, because it was made amidst a veritable battle of interest groups and lobbying.

It was pragmatic, because it managed to bring all industry stakeholders on board simply through expanding the opportunity at hand, creating a wide win-win proposition.

The current capacity of manufacturing is not large enough to cater to the ambitious plans and government is not willing to wait for domestic manufacturing to grow before increasing the market size.

Instead, to help Indian manufacturers sustain and grow, a helping hand will be provided in domestic content procurement from public sector companies. ´For a country like India where energy security and energy access are critical issues, a holistic and balanced approach to the build out of solar is needed that will in the end create all-round economic growth and jobs,´ Ghosh adds.

Points out Budania, ´Not imposing ADD has had a positive impact on the market. The comparably low tariff rate of Rs 5.10 in Madhya Pradesh and Telangana is possible because of this. Also, more people have come in to bid, pushing the competition. Thus, it has a positive impact.´

Is it sunny skies ahead?
Yes, if the industry opinions and expectations are to be believed. While some were fully optimistic, others were cautiously so-but they all agree, the only way ahead is up.

Gupta maintains, ´The government is supportive by bringing in new policies. But, they would be required to do more to promote domestic manufacturing. We are very optimistic about India´s growth in the solar sector and expect the industry to be growing by at least 20-30 per cent CAGR every year.´

Shares Rajagopalan, ´We have to be optimistic. There is a majority government in place, and the good things they are talking about are the land acquisition bill, GST and economic reforms, which once they go through with, will automatically move things ahead quickly for the sector.´

´The aggressive targets indicate a boom in the solar industry in the coming 5 years. Keeping this in mind, I expect 100 per cent growth in solar every year till 2018,´ adds Mathur.

´Indian solar manufacturing is at a critical juncture. Consolidation of the sector has already been happening at the global level and India is not going to be immune to that trend. The future growth of the Indian solar sector will depend a lot on the outcome of the anti-dumping investigations and the effectiveness of the DCR,´ believes Madhavan Nampoothiri, RESolve Energy Consultants.

Jain states, ´As of now I do not see domestic manufacturing picking up alongside the solar announcements and commitments that were made. But, I believe that 8-10 GW of capacity is a good enough for India. I expect the growth to be around 50 per cent over the next two years, so I am not overly optimistic. But, if we reach 100,000 MW target by even 2025 and not by 2022 as planned, that is also a very good job.´

´The policy framework needs to become consistent, stable, predictable and business friendly. Government has a key role in enabling private business models. No doubt there will be short term challenges but the sheer fundamental attractiveness of this market and first mover advantage is compelling enough,´ the Bridge to India report adds.

POWER TODAY suggestions:

  • The government should extend DCR to cover all verticals of the manufacturing sector.
  • Financial aid, through interest subvention schemes, tax benefits, etc., should be extended for infrastructure development to Indian manufacturers.
  • Quality standards should be specified by National Institute of Solar Energy (NISE) for solar modules so that quality is not compromised by cheaper imports.
  • Government should promote more high-tech manufacturing to facilitate the bigger organisations to acquire technology from international markets.

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