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“Playing field isn’t fair for solar in India” says Aninda Moitra, Managing Director of Applied Materials in India

‘Playing field isn’t fair for solar’

Cost of capital is the biggest hurdle for Indian solar panel producers. MR ANINDA MOITRA, MANAGING DIRECTOR, APPLIED MATERIALS INDIA PVT. LIMITED

India’s solar photovoltaic sector is passing through a consolidation phase. Companies are winning contracts under the Jawaharlal Nehru National Solar Mission (JNNSM) and State-driven policies.

Prices of panels have fallen due to the general slowdown and the drop in demand in the international market. But factors such as availability of low-cost capital and reluctance of domestic lenders to fund projects, continue to act as challenges for promoters.

Applied Materials, Inc (Nasdaq:AMAT) is a leader in technology and an equipment supplier to this sector, and to the global semiconductor industry. Mr Aninda Moitra, Managing Director of Applied Materials in India, provides insights into the sector . Excerpts.

The electronics industry and renewable energy are witness to rapid changes. What is the general outlook?

There are two patterns underway on a global level. The first is mobility in the semiconductor and the electronics sectors, and the second is clean energy fuelling the renewable sector. Applied Materials is front and centre on both these mega patterns with businesses in semiconductors, in display, and in crystalline solar energy.

The global electronics market might actually see some growth this year. The numbers can be as high as $300-350 billion. Computation is a very big thing driving the market currently. Consumer electronics and wireless are hence quite big, and continue to grow in that space. India is following suit. But in reality, the wireless space here is much bigger, relative to computation. According to Gartner, the overall electronics market in India during the next 3 years is poised for growth.

The JNNSM and State Government incentives are driving this growth. The end market on grid power activity will be strong during the next few years. However, around the manufacturing sector, the story isn’t that rosy. The cost of capital is a major burden on manufacturing. In Batch 2 reverse bidding, not even one single Indian manufacturer is present. The cost of capital is the biggest hurdle. On top of that, there is a difference between the crystalline silicon and the thin films in terms of the local content restriction.

What is the situation with regard to pricing?

With the scale coming from China, for the pricing of powdered silicon and the cost of capital, price points continue to head downwards today. Year after year, it is coming down beyond what is expected. The drop in pricing has been fuelled by cost of capital, as well as scale. Really, what should also happen is innovative R&D to drive it down the technology curve.

In the end, innovation is necessary to drive cost down. You cannot have only financial levers or pure scale levers to reduce cost. Therefore, driving cost down is a function of three things — efficiency through innovation and use of technology, reduction in material costs, and improving productivity. Presently, the cost of capital is the biggest lever. That isn’t the best thing in the long term.

Are some sub-patterns emerging in India?

In India, it is all to do with continued end demand. Due to local content restrictions (LCR) on the crystalline silicon side, there are openings for the thin films side. The latter doesn’t have an LCR restriction as per the policy. The thin films technology is seeing more traction at the moment than crystalline silicon-based technology. Because of LCR restriction being absent for thin films, foreign companies are able to leverage that and have lower cost of capital. Cheaper capital enables setting of lower price points than an Indian manufacturer. In a sense, the playing field isn’t fair.

During Solarcon, the US delegation spoke of anti-dumping issues and local sourcing…

At Applied Materials, we believe you need to apply everything uniformly. So, if a country, for various reasons, needs local content, it should be applied uniformly to all technologies.

From approximately Rs 16 to 18-odd crore for the 1 mega watt implementation benchmark, it has come down to Rs 8.5 to 9 crore recently. What is your assessment?

These numbers are aggressive. The cost of capital allows you to bid for this. It isn’t a function of actual cost, as everybody is relying on incentives.

This sector uses many financial levers and incentives to drive cost down. Fundamentally, we need to return to the innovation-driven approach. That is, by reducing manufacturing costs and increasing productivity, as ways to long-term and stable cost reduction.

There has been a crash in prices globally. Has it directly benefited India?

In India, the actual installations still aren’t done. Due to the reverse bidding process, we are witness to price points that are much lower than what was expected. In the end market, people are willing to bid lower than the first draft. But this has to translate into installation. The expectation is 350 MW capacity by 2013.

Recently, we have got some good installations happening, like GMR, Reliance, Mahindra Solar and some more. So, doesn’t that itself seem to add to a couple of hundreds of mega watts?

If you look at Phase 1, Batch 1, Batch 2, the end market in India continues to be strong. This will go on perceivably well into the next 5-7 years. There is still a lot of room. The key is India capitalising on the entire ecosystem of this end market.

The manufacturing sector isn’t really capitalising on this. I think this kind of discussion could be put on the semi-conductor side, as it relates to how the ecosystem is being realised. This is a mirror image.

Our focus on the solar equipment is on the crystalline silicon side and its manufacturing in India. The factories in India are underutilised. The near-term outlook is pretty bleak. Therefore, it brings us once again to this discussion of local content versus the equal playing field and cost of capital.

In the near term, the outlook on the crystalline silicon side for the manufacturers in India is pretty bleak.

What is your understanding of global players’ perception of India currently?

One must be able to compete on technology and cost. Coming into India with the notion of finding a lower-cost solution isn’t going to work relative to what is going on in China. Due to additional capacity there today, there will be consolidation in the panel manufacturing arena. Winners will be companies that have continued technology differentiation, innovation, R&D, as well as cost-competitiveness.

Relatively cheaper labour here cannot overcome the big differential in cost of capital that you can get globally, versus what it is in India today. Cost of manufacturing coming out of China is extremely competitive. The only alternative to mitigate that cost is to get finances cheaper. If you aren’t able to do that, then you are at a disadvantage. That is why Indian solar panel manufacturers are at a disadvantage.

What are some of the expectations and key challenges in the solar power arena?

In solar panel manufacturing, driving down the cost is the key issue. One can choose to drive cost down by looking at the external environment, be it cost of capital as one approach, or you can look at driving cost down using technology and operational efficiency.

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