According to reports, solar photovoltaic modules are the most important components of a solar power plant and developing a robust local manufacturing capability is key to creating jobs, reducing forex outflows and increasing foreign investment. Domestic solar manufacturers need to be supported, to enable them to compete in the domestic and international markets against the implicit subsidies provided to imported modules. This article focuses on the current market scenario for domestic modules, and recommends a roadmap.
The government’s decision to hold separate auctions for solar projects that will exclusively use domestically manufactured modules (with imported cells), has huge potential to develop local manufacturing. Imported modules are still 8-10 per cent cheaper than domestic modules and creating a separate portfolio for projects based on domestic modules can help reduce that gap. The WTO’s misplaced assessment of the Domestic Content Requirement (DCR) policy created a major roadblock, leading the government to recommend that Central public sector undertakings set up plants using domestically manufactured modules. However, despite encouraging announcements, many projects based on domestic modules have yet to see the light of day.
According to the research firm Mercom’s India Solar Project Tracker, solar projects with a total capacity of 5,453 Mw have been tendered under the DCR category as of March 2017, of which only 3,342 Mw (61 per cent) has been auctioned. Of this, only 1,353 Mw (25 per cent) of DCR projects have been commissioned and another 1,988 Mw (36 per cent) are in various stages of development. The share of DCR projects has plummeted since the announcement of the National Solar Mission. In 2010-12 nearly 80 per cent of projects tendered were in the DCR category; in 2013-14 it was just 50 per cent. The high percentage of DCR projects in the initial stages led to healthy growth of the Indian manufacturing industry. However, after the WTO ruling, and China’s emergence as a global PV manufacturing hub, the domestic industry has again become vulnerable to cheaper imported modules with hidden government subsidies.
Developers prefer importing cheaper solar modules to increase profit margins. Developers’ lack of interest in participating in tenders based on DCR has added to the problem, while delays in awarding contracts have restricted the growth of the solar industry. In some instances, completed auctions have been cancelled altogether. Such delays stretch project timelines and create roadblocks in achieving the 100 Gw target.
Protective measures required
India has to compete with countries such as China, where the solar sector receives strong protective support from the government. Indian companies of capacities 0.5-1 Gw are often forced to compete with companies having capacities of 5-7 Gw. Domestic manufacturers are using imported cells, because manufacturing capacity of solar cells in the country is barely 1,750 Mw (not enough to support the module manufacturing industry). Even after using imported cells for domestic module production, imported modules are 8-10 per cent cheaper than domestic modules. Therefore, to lower domestically manufactured module prices even further, support in the shape of greater demand is required, which will generate economies of scale. Protective measures in the form of quotas like DCR are meant to create demand for domestic manufacturers that can translate into sustainable growth.
Benefits of DCR
The DCR policy has several undoubted benefits: With increase in local manufacturing, India can inspire to become a global manufacturing hub for solar photovoltaic cells; local players will be incentivised to focus on technological improvements; thousands of new jobs will be created; there will be opportunities for backward integration (after module manufacturing, companies can move to cell, wafer and ingot production too, leading to economies of scale and lower prices throughout the value chain) and horizontal integration (production of components such as inverters, trackers and cables). The setting up of production facilities for EVA, backsheet and ARC glass, which can yield significant reduction in costs of modules, will also be incentivised.
The recent WTO ruling has led to the scrapping of the DCR quota, making it difficult for domestic players to compete with imported modules. India’s solar trade surplus was an estimated $286 million in 2010-11; by 2016-17 this had turned into a deficit of $2,571 million. This trend is expected to continue, affecting India’s energy security and making the solar mission highly dependent on other countries.
However, the government can address the problem by mandating DCR modules for infrastructure projects such as ports, railways and airports. This will create a larger market share (currently 10-15 per cent) for them. Significantly, Chinese module suppliers have increased their market share in the Indian PV market to 85 per cent, from 50 per cent in earlier years. To address the situation, the government should announce more DCR projects and focus on faster award of contracts.
Despite artificial competition from subsidised imported products, domestic PV manufacturing has grown impressively. However, to compete with Chinese players in both Indian and foreign markets, the government must continue to provide necessary support until the sector achieves the required scale.