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The solar war heats up in India

According to reports, the United States’ action of complaining against India in the World Trade Organisation over the Indian government’s so-called ‘domestic content requirement’ — for solar modules used in the projects awarded under the Jawaharlal Nehru National Solar Mission — has brought to the fore a major divide in the Indian solar industry and the government’s predicament over it.

In India, the solar power industry is a 3-year-old baby. On the solar power generation side, the total installed solar power capacity in India in 2010 was 18 MW. Today, it is 1,200 MW, and at least another 500 MW will be added this year. On the solar power equipment side, Indian manufacturers have capacity to produce about 1,900 MW of modules that will generate electricity when the sun’s rays fall on them. Both these segments need to be nurtured. But who first, given that today the two happen to be on opposite sides?

Indian manufacturers want protection against the much cheaper products from abroad, especially from the Chinese crystalline silicon manufacturers and the American ‘thin film’ manufacturers, both of whom often bring in cheap funding for their buyers.

India has an ambitious target of 22,000 MW of solar capacity by 2022, and where is the sense, ask the module manufacturers, in rolling out a $40 billion programme if the domestic producers have no share of it.

The project developers stress that it is only smart to let them buy their equipment from the cheapest sources in the world, so that a culture of setting up solar plants develops first. Force them to buy locally, the costs will stunt the growth of the fledgling industry and neither the power producers nor the module makers will be in business.

In trying to tread the fine line between these two positions, the government of India has triggered off what some people are calling ‘solar wars’.

The National Solar Mission (NSM) is being rolled out in phases, and for the first batch of the first phase, the government said that those project developers who opt for the crystalline silicon modules, shall buy only those made in India. For the second batch, it went a step down in the value chain and said that even the cells will have to be made in India. This is what has got the United States’ goat. This rule did not apply to thin film, simply because there is no thin film module manufacturer in India to buy from. As a consequence of this, most of the project developers went in for imported thin film modules.

This domestic content requirement was only for projects awarded under the NSM and not for those set up under the various states’ programmes. Notably, of the 1,200 MW of capacity in India today, about 850 MW has come under Gujarat’s programme. Most of those putting up projects under the states’ programmes are therefore importing their modules.

Thus, the NSM projects are importing thin films (mainly from the U.S.), those under states’ programmes are importing crystalline silicon modules (mainly from China) and nobody is buying from Indian manufacturers.

Against this backdrop, India initiated anti-dumping investigations in November last year against manufacturers in China, USA, Taiwan and Malaysia, deferring to the pleas of the domestic manufacturing industry. The solar power generators were promptly up in arms, pleading that the duty would make their upcoming projects unviable, given that most of them were won under thin-margin tariffs determined through competitive bidding processes.

Now, the U.S. has taken India to WTO over the ‘domestic content requirement’ (DCR) under the NSM. India is likely to argue that the NSM is in the nature of government procurement — because the power is bought by a government-owned company. India is not a signatory to the Agreement on Government Procurement, hence, no violation.

Secondly, India will argue that the DCR rules have truly caused no damage to any overseas manufacturers, because it is applied on a very small portion of the country’s goals, the rules do not cover states’ programmes.

And thus you have the solar war with the Indian government initiating anti-dumping duty and US government taking India to WTO. This echoes what is happening elsewhere in the world — China, USA and EU are all similarly sword-crossed with each other.

Regardless of which way these moves go, the fundamental question remains — how to balance the conflicting interests of manufacturers and project developers? There are no quick and easy answers, but one way out could be to encourage Indian companies to acquire technologies abroad — for technology alone could be the answer to the advantage of scale that the American and Chinese companies have. Such technologies are available and are being acquired. For instance, a South Korean company, Hanwha, which took over the German major, Q-Cells, last year, also bought Crystal Solar of the US for just $23 million. Crystal Solar is developing cutting edge solar manufacturing technologies. Hanergy, a Chinese company, took over the American company, Miasole, recently, but it also acquired another division of Q-Cells, called Solibro. The Chinese and the Koreans have an eye on emerging technologies. Why not Indian companies?

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