Why The Solar PLI Scheme Will Throw Up Big Opportunities, And Challenges For Industry

The allocation of a further Rs 19,500 crore for solar manufacturing under the Solar PLI (Performance Linked Incentive) scheme, which rewards manufacturers for both backward integration and exports, is indeed a big deal. Taken in its entirety with the existing Solar PLI scheme of Rs 4500 crore that is already under execution, the scheme will place India irreversibly on the solar manufacturing path for the long term, with the Minister for Power and MNRE, R.K. Singh adding in Parliament yesterday (after predicting back in November that an expansion was inevitable) that it will create an additional 40-45 GW of integrated manufacturing chain for solar in India. With some of the largest industrial groups committed to it, be it the Reliance Group or the Adani Group, this is one government plan that does look like it will achieve key objectives.

The Sheer Scale Changes The Picture

The original scheme targeted creation of a manufacturing capacity of 10 GW, with investments of over Rs 17,000 crores from winning bidders. And it attracted massive interest, which can be catered to now. By that yardstick, the new, larger version could drive overall investments of close to 75,000 crores, or $10 billion into solar manufacturing. That will do two things. Make India an export hub for multiple markets worldwide, building on the footprint it already has in key markets like the US, Europe. More importantly, the scale of investments in the next two years will put solar manufacturing at the front of the country’s manufacturing ambitions, finally pushing the sector to the front with other key sectors in size as well as potential.

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With key requirements of a strong domestic market, and tariff protections from low cost imports in place, the next 3-5 years seem to offer a clear pathway for (large) manufacturers, both existing and newer ones.

Consolidation Inevitable

The scheme will also possibly change the  structure of the solar manufacturing sector massively, consolidating it among the top 7-10 players at most, who will contribute close to 85 or even 90% of module production. However, consolidation risks hurting, or even wiping out the MSME sector that makes over 50% of domestic modules currently, with the related impact on jobs. One can only hope that the new pressure will force more innovation on the cost side, as well as quality, from existing domestic manufacturers, as they seek to stay relevant.  Industry bodies like NIMMA definitely make a strong case for support for MSME’s and have a task ahead of them to convince the government. Watch out for the derailed interview with NIMMA president and Insolation Energy Founder, Manish Gupta, that will follow today.

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MSME’s For Balance of Systems Materials

The government should take care to enable MSME’s to produce other key non-cell components like glass, ribbon, EVA sheet, and others which constitute 30 to 35% of the total module costs. These component parts are more labour intensive, and only by supporting their manufacturing too, can the government get the full benefit of domestic manufacturing here, in terms of jobs as well as larger export opportunities. These balance of system manufacturers are also essential to overall competitiveness of the large, high efficiency module manufacturers that the government seeks to enable.

But it is clear that the government will face a tightrope walk to ensure the survival of smaller module manufacturers, especially those in the sub 100 MW manufacturing category, as they struggle to raise enough funds to expand, or compete with the new, larger players coming in soon, besides existing players who are expanding furiously.