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Don’t support Indian solar manufacturers now

According to reports, Instead of subsidising local manufacture, the Union Government could support basic research and product development.

An industry insider likens what is happening in the global solar industry to the lifestyle of grasshoppers. The creatures first eat up all the grass voraciously and then, when they have nothing left to eat, they eat each other.

Only a year ago, firms such Q-Cells of Germany and Miasole of the US were respectable names in the solar-cell manufacturing industry. Last month, Q-Cells was bought by Hanwha of South Korea. More recently, Miasole was taken over by Hanergy of China.

Now, Siemens has decided to exit the solar business and has put up its photovoltaic (PV) modules business on sale. A number of Chinese companies are interested in buying.

Q-Cells, Miasole and now, Siemens are but examples of Western companies that led technology innovation in solar-cell manufacture, looked good in terms of their long-term prospects, but fell to the unrelenting laws of market forces. But they were lucky to be taken over and not have to close down. For every Western solar company that has been taken over by a Chinese or Korean company, there are several others which have just had to close shop. RESolve, an Indian solar PV consultancy, counts 26 Western companies that have either closed down, sold off or discontinued solar lines since August 2011. The list does not include GE, which decided to put on hold its solar ambitions earlier, or Siemens which bowed out of the solar industry recently.

Grasshoppers are on the rampage. Chinese companies have lowered prices so much that no Western company is able to stand their onslaught. Module prices, which were around $1.5 a watt in 2009, have come down to a third of that today, thanks singularly to the Chinese.

Not surprisingly, this situation has caused a lot of heartburns. Recently, the US Department of Commerce determined that Chinese producers and exporters have sold solar cells in the US at dumping margins ranging from 18.32 per cent to 249.96 per cent. The bankrupt US company, Solyndra, has filed an anti-trust case against SuntechPower Holdings alleging that the firm ran an illegal cartel that allowed below-cost modules to be sold in the US.

Nor are the Chinese companies sitting on top of the market laughing over the carcasses of their befallen Western competitors. They are bleeding. Take the top three among them — Suntech, Trina and Yingli. All the three are in trouble. Yingli has warned of its margins coming down, and Suntech has cut production. Trina made losses in the second quarter. Below these three, hundreds of Chinese companies have closed down.

All this holds out a very clear and distilled message for India.

Today, global module prices are exceptionally low. Once the market settles down, the last ones standing will not be selling at these prices. While scale and technological improvements will help bring down the costs, the fairest assumption ought to be that prices will rise from these levels. Therefore, India, which is on the cusp of a solar-power revolution, must take advantage of these exceptional circumstances. Developers must be allowed to source their equipment from anywhere and not be fettered by local procurement stipulations.

Today, as the second phase of the National Solar Mission rolls out, the Union Government is facing pressures and counter-pressures from the manufacturing lobby and the developers.

The manufacturers’ argument is that a big market such as India ought not to depend on supplies from elsewhere and the country must capture as much economic value addition as possible. The developers’ argue, if you don’t encourage cheap sourcing, there will be no market in the first place, so where is the question of giving a slice of it to local manufacturers? The reality is that India cannot at this stage be an integrated manufacturer of solar modules, because the scales just cannot support it. Polysilicon today sells at $20 a kg, compared with the peak of $400 a kg in 2007. No Indian manufacturer, even if foreign owned, can produce polysilicon for that price. ‘Indian manufacture’ will therefore be a small percentage of value addition — buy cells from abroad and make modules out of them, a process described by an industry expert as akin to ‘book binding.’ Moreover, it hardly creates enough jobs.

The Government has initiated anti-dumping investigation into imports of panels from China, Malaysia and the US. An anti-dumping duty will be a regressive step. Even in the US, there is a growing body of opinion that the anti-dumping duty is counter-productive. The higher duty only pushes up prices.

It does not make sense for the Government to spend money to support local manufacture. Instead, the funds could be earmarked, for instance, for subsidising those who put up solar plants to electrify villages.

However, this is not to say that the Government should fold its hands and watch the proceedings from the sidelines. Support can be in the form of funds for research and development — both basic science and product development. There is a huge scope, particularly in the latter.

Funds can be provided for applications that give the biggest bang for the buck. For instance, if you give subsidy for solar-powered agricultural pumps, you not only eliminate the need for the supply of free power to farmers, but also revolutionise agriculture. You need look no further than Gujarat for an example.

One comment

  1. If you remember or visit my web site about my presentation in PV insider, i had exactly proposed the same i.e allow the import of cheap Panels with a commission to Indian PV manufacturers and let these manufacturers give counter guarantee of replacement with the same terms with the original supplier. This 2.5% comission can be deployed in R and D, instead of looking free money from Govt for Subsidy. I.e work to increase sales of Foreign supplied panels and deploy the commission to R and D. If no R and D pay back the money to the developers or Government who so ever has paid the 2.5%…. every action of subsidy shall have result oriented compensation, otherwise in 1970 to 90 all PSU companies used to get DST fund for R and D and pay salaries by showing some stupid paper work which used to be signed by IAS MD or IAS Secretary who never understood the word of such paper as few of them were Commerce or Arts Graduates… pathetic was DST funding and subsidy and it exists even today with a variation…

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