Cover Story | August 2018
Solar sector bottlenecks may hamper job growth
Currently, the sector is facing a lot of bottlenecks, such as power evacuation, land acquisition, renegotiation, cancellation of PPAs, ambiguity over taxation and duties,' opines Rajendra Parakh, Chief Financial Officer, Vikram Solar.
Solar sector has seen a renewed focus over the last few years and with just four years to go [by 2022] for the target of 100 GW, what kind of employment opportunities do we see in the sector?
In India, the solar industry has created 416,000 jobs in 2015 and 1,017,800 jobs are expected to be created by 2022. New projects, more investment, policies like Surya Mitra Skill Development and encouragement from the government will create more job opportunities. According to studies, 1 GW of solar installation creates approximately 5,000 jobs (starting from manufacturing to the execution of the project).
Which are the core segments that will see the creation of jobs?
Business development, design and pre-construction, construction and commissioning, operations and maintenance are the primary areas where the Indian solar sector will require resources. Currently, the sector is facing a lot of bottlenecks, such as power evacuation, land acquisition, renegotiation, cancellation of PPAs, ambiguity over taxation and duties. This is creating panic among investors, as
they are worried of being caught at wrong financial positions. As a trickle-down effect of these bottlenecks, job opportunities are getting hampered. The solar sector requires policy consistency.
Since electricity is a concurrent subject, what kind of challenges do we see in the adoption of solar power and in the creation of jobs?
It is easy to understand that the growth of solar will create a demand for skilled resources, which will create jobs. Currently, the challenges we face are:
- Lack of auctioning or awarding of projects
- Cancellation of projects
- Confusion of imposing duties on SEZ-based solar manufacturers
- Lack of R&D development
- Delays in refunding taxes, while imposing GST
- States failing to reach RPO obligation, falling tariffs
- Confusion regarding helpful policies like net metering
- Lack of flexible financing
- Lack of uniform policy
- These challenges limit solar growth and halt job creation within India.
How are safeguard duties and GST seen as constraints for the growth of the sector? Do not you think it is good for the domestic solar industry?
GST is undoubtedly one of the bold reformations that promised to change Indian economic landscape for good. It has led to standardisation of indirect tax laws, thus making them business-friendly and intelligible for investors. Before GST implementation, the solar industry enjoyed 'NIL' excise duty, 'NIL' sales tax in most of the states and 'NIL' basic custom duty.
However, there is ambiguity on GST rates. If solar modules are charged 5 per cent GST, there is an issue of cash flow blockage. And at 18 per cent GST, developers are showing hesitance in awarding projects.
MNRE has issued a clarification stating that all the equipment used in deploying solar power projects, including work contracts, should be classified under five per cent tax bracket. Unless there is a Gazette notification from the Ministry of Finance or GST council stating that all the equipment used in deploying solar power projects including work contracts should be classified under five per cent tax bracket, ambiguity will prevail in the sector.
Meanwhile, safeguard duties too have created a stir in the industry. In India, a major proportion of solar cells and module manufacturing is located in SEZ. (More than 40 per cent of solar module manufacturing facilities and more than 60 per cent of solar cell manufacturing facilities are located in SEZ). As per the existing laws, removal of domestic tariff areas (DTAs) from SEZ is required to pay safeguard duty.
Imposition of safeguard duty thus provides no protection to SEZ units; on the contrary, it makes them costlier because of the payment of safeguard duty. If levied, there should be an exemption on SEZ to DTA clearance. The duty should also be applicable only prospectively, that is, the projects for which bids have already been made should be exempted from safeguard duty. Current and upcoming tenders should clearly define the mechanism through which safeguard duty can be passed on to the end consumer. Recently, safeguard duties of 25 per cent have been recommended, which stands to affect the solar industry in a negative manner.
Do you think open access, net metering and more and more residences adopting rooftop solar electricity will lead to the creation of jobs and capacity within the sector?
Focusing on net metering and rooftop solar growth within India will surely increase its awareness and lead to the demand and job creation in the filed of engineering, plant installation, maintenance, etc. The Government of India has already reached a certain level of achievement, where 29 states and seven union territories have been identified for solar development and are in different stages of implementation. Yet, we need to carefully focus on enforcing policies and providing clarity upon them to see positive changes.
What is the outlook beyond 2022?
We see a huge potential for the solar industry in India as the country has already ranked high in the list of business-ready countries and new government initiatives like the International Solar Alliance (ISA) are given shape. In recent years, the Indian solar sector has focused on solar park development, residential rooftop solar growth and in future, the developments will lead to progress through government support. With investments pouring in, new projects being introduced and initiatives like ISA taken, India has a chance to improve its solar export scenario for good. It can become one of the leading solar exporters, increasing its solar export income from the current $69 million. Solar energy transition promises to transform India's energy scenario and socioûeconomic stature rapidly. However, for that to happen, India needs to focus and implement strategies for the long-term growth besides succeeding in achieving the current targets.
Investing in domestic manufacturing can help in building supply chain, controlling prices and earning from export markets. Focusing on export market is very important now and it is apparent that it will gain even more prominence in future. New market development all over the world presents the opportunity to claim sizeable portions of the export market. However, to do that, India needs to focus on manufacturing.
Investing in the solar technology, R&D can help in the innovation of solar harvesting technology, thus maintaining quality and reliability of projects, maximising yield and rapidly making solar even more efficient and feasible for common people. Investing in power evacuation and dispersion and in infrastructure building is also needed to connect the farthest corners of the country for easy green energy distribution. Developing flexible financing options would also support project development within the country. Focusing on policy enforcements like mandating RPO, mandating development of solar-ready buildings, net metering etc., is required.
Strategies that will help India in the long run of maintaining green energy transition needs to be initiated right now. Otherwise, India will not be able to become globally competitive and can lose out on business and solarisation opportunities that are coming.