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‘Compulsory use of local content for solar projects may result in trade disputes’

According to reports, India’s decision to include domestic content requirement for half of its 750-MW solar photovoltaic projects put on offer in the second round of national mission programme may cause trade disputes, says Mercom Capital Group llc.

Mercom is a US-based clean energy communications and consulting firm.

In its outlook for ‘Indian solar market — Forecasting a better 2014 after a lacklustre year’, it said that the decision to mandate domestic content may be enough to cause a trade dispute, but not enough to help domestic manufacturers.

It is an unnecessary risk that raises uncertainty with minimal reward, the firm said, adding that “Because of the delay in announcing second phase, these projects are not expected to be commissioned until at least May 2015.”

Half (375 MW) out of the 750 MW will have a separate bidding process and will have a domestic content requirement under which solar cells and modules used must be made in India.

Developers can either opt to bid for domestic content requirement or open categories. The open category will have no domestic content requirement.

In the initial batch of the first phase, power purchase agreements were signed for 610 MW (140 MW-photovoltaic, 470 MW-solar thermal). While 140 MW of PV projects have been commissioned, only one 50 MW solar thermal project has been completed.

Originally 470 MW of solar thermal projects were due to be commissioned by May 2013. The remaining projects have been given an extension until March 2014.

“Our due diligence indicates that 150 MW of the 470 MW solar thermal projects are in advanced stages of development,” it said.

Once commissioned (the delayed solar thermal), these projects will receive tariffs between Rs 10.49/unit and Rs 12.24/unit, a premium of almost 40-50 per cent over new PV projects (most of which are currently bidding in the Rs 6.50/unit- Rs 8/unit range).

“These (solar thermal) projects will not be penalised for delaying up to a year. It is time to eliminate the required photovoltaic: solar thermal ratio for good and let the market decide on the best and most cost-effective technologies,” it said.

It has been a quiet year for the Indian solar sector, with installations at 900 MW so far this year and final numbers forecasted to be similar to last year, Mercom said.

India is not likely to register any significant growth in capacity of solar sector in 2013, even as the global market is expected to grow by 20 per cent.

The challenges faced by the Indian economy this year also affected the solar industry.

This year the market has seen high inflation, a 8 per cent rise in module prices and a 15 per cent rupee depreciation, all of which contributed to overall project costs, it said.

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