According to reports, there are strong arguments on either side regarding indigenisation of the solar industry. The National Solar Mission has created a $19 billion industry and the States’ programmes of Gujarat, Rajasthan and Karnataka add further billions to it.
To capture most of the value and keep it within the country is indeed a noble thought; insistence on local manufacture is, therefore, a persuasive idea. On the other hand, the stuff necessary to produce electricity from sunlight is available abroad cheap – and is getting cheaper. It seems impossible for locally produced equipment to match global prices. Therefore, to mandate production within the country, the argument goes, is bereft of economic logic.
What do you actually need to produce solar electricity? First, to hark back to the basics, when sunlight falls on certain materials it dislodges electrons from the atoms of those materials and the ensuing river of electrons is the electricity.
So you need acres of these materials to face the sun to enable this process. For the more conventional ‘photo-voltaic route’, you either expose polysilicon wafers stuck under glass to sunlight, or paint glass panels with certain chemicals and put the panels under the sun.
The latter – thin film – is as yet an evolving technology, but one that shows great promise. The former, the crystalline silicon route, is time-tested and is getting better with billions pumped into R&D.
Under this route, you produce silicon from sand, use the silicon to produce ingots of polysilicon wafers, slice the wafers and make ‘cells’, string the cells in rows, put wires to conduct electricity, stick them to a special glass, and you are in business. For the thin film route, you prepare the chemical compounds, and paint them on to glass using a rather hi-tech process called sputtering.
Now, India has sand, of course, but practically nothing else. Sure, there are people to make glass, metal frames etc, but these are small value. The idea of the policymakers is to start from one step below the finished product, and slowly keep marching down the value chain, like a python swallowing a rabbit.
The guidelines for Batch II of phase I of National Solar Mission prescribe a certain level of local manufacture for crystalline photo voltaic modules, but none for thin film. This is because while some manufacturing facilities are coming up for crystalline, nothing is happening on the thin film side, perhaps because it is very high-tech.
There is a criticism that such a bias needlessly and inequitably skews the market in favour of imports, which is countered by those who ask, ‘if you ask the thin film guys to buy locally, whom would they buy from, there being no one who sells’. But this debate is a subset of the larger debate as to whether policy should force local manufacture, or leave it to the market.
The fundamental premise of the argument against mandated local manufacture is the phenomenal fall in global module prices, driven by overcapacity and low demand from the main market, Europe. Module prices have crashed, from $ 1.7 a watt a year ago to close to $ 1.2 a watt now.
What is happening the world over resembles a race to the cliff edge. The American company MEMC (whose associate company, SunEdison, is active in India) promises to produce a module for $1 a watt in 2012 — but guess what, the Chinese company, ReneSola Ltd, will sell a module for 90 cents a watt that year.
MEMC’s compatriot, First Solar (which incidentally is very active in India with orders worth 250 MW for 2012) is working towards producing a module at a price between 63 cents and 52 cents by 2014.
Norwegian company, Renewable Energy Corporation, which has manufacturing facilities in Norway (180 MW) and Singapore (800 MW), produced modules at $ 1.54 a watt, but that was with costing of silicon at the market price of $ 50 a kg. REC’s cost of manufacture of silicon actually works out to $ 14.50 a kg, which reflects the headroom the company has to drop prices.
All this adds up to a simple fact: solar module prices are coming down. The reasons (apart from the seemingly temporary aspect of depressed demand) are improvements in technology and economies of scale kicking in. So, where is the sense in the Indian government mandating local manufacture? The annual demand in India, going by the current programmes, is around 1 GW. In contrast, the global capacity is about 30 GW, of which there is usually a substantial idle capacity (estimated at 9 GW now).
Now, the other side…
Those who favour local manufacture say that these arguments are fundamentally premised on assumptions that are not necessarily valid. The assumed annual demand in India of 1 GW is neither small, nor static. Several states are waiting to announce their own solar programmes, and with the falling prices of modules, the interest in this sector is rising sharply.
With support from the ‘renewable energy certificate’ regime — which entails an obligation to purchase either costly green energy or the ‘renewable energy certificate’ — and attractive support prices, it is a fair assumption that more players will jump into the solar fray.
The resultant demand for modules will create a sufficient market to justify local production, introducing scale economies at home as well.
Secondly, even with the present demand levels, who said that Indian manufacturers cannot match international prices, asks Mr. Prasanth Sakhamuri, Chairman of HHV. Bangalore-based HHV is the country’s only manufacturer of machinery for making solar PV modules.
Today, HHV sells a 50 MW plant for $50 million. Using HHV’s plant, you can produce modules (thin film, with amorphous silicon coating) for 80 cents a watt. That is at an efficiency level of 7 per cent – the modules will convert 7 per cent of the light energy falling on them into electrical energy.
HHV has a road map for improving efficiency, and also to bring down material costs. With higher efficiency, fewer modules per watt will be required, and cost per watt will come down.
Mr. Sakhamuri says that a customer of HHV will be able to produce modules at 40 cents a watt by 2015. Some are sceptical about the ‘double tandem’ and ‘triple tandem’ technologies that HHV assumes, but then, that scepticism should apply to other foreign players too, whose cost reductions would also be predicated upon technological improvements.
To what extent would a made-in-India module be more expensive than one imported? Back-of-the-envelope calculations show that solar power produced by indigenous modules will cost a consumer of electricity just an additional 20-25 paise per kwH, compared with that produced by foreign modules. (If the module prices are down to 40 cents a watt, as is expected by 2015, it will translate into a per unit electricity cost of Rs 5-6.) Big deal! It is the price the society could be expected to pay for developing a new industry in the country, with positive implications not only for jobs, but also for control of technology.
In the end, the pro-local-manufacture people seem to have a point.