With Focus On Chinese Imports, Familiar Tussle Returns For Solar Sector

Imports in the solar sector, where Chinese origin equipment is said to account for anything between 78 percent to 85 percent of equipment used, are back in focus. Reports quoting sources say that the government has sought product-wise details of cheap imports, comparison with domestic prices and tax disadvantage, if any, from industry to curb low-quality inbound shipments especially from China and boost domestic manufacturing.

That places two familiar camps, those of the developers, and domestic manufacturers, including those in the small scale sector, back on centre stage. While developers have usually pushed for minimum restrictions on imports, blaming lack of domestic capacity, quality, and cost competitiveness, domestic manufacturers have had their own list of demands for long, be it ‘dumping’ by Chinese firms, access to capital, and policy failures that have stunted growth in Indian manufacturing in the sector.

On an overall system basis, the modules and inverters between them account for close to 65 percent of project costs. The rest, comprising wiring, controllers, evacuation cost, mounting structures etc account for the remaining, where it seems far easier to attempt higher domestic sourcing.

Interestingly, even in inverters, there seems to be adequate domestic capacity to meet requirements, though most of it owned by foreign firms, including Chinese firms.

Which brings us to the tricky issue of modules. Even after the record setting approval for Adani Solar to set up a 2 GW manufacturing plant, (Azure’s 1 GW approval seems to entail ‘solar kits’, not end to end manufacturing), actual domestic capacity for quality modules is unlikely to meet demand for the foreseeable future. Or 2026 at least.  And that is assuming an approval to output start period of 2 years, which is being very generous, considering our processes and past record.

Perhaps most importantly, the question of price needs to be answered too. Experts have regularly informed us of a price difference of at least 25 to 35 percent at times, between import costs and domestic prices. Which explains how, even after the sliding Safeguard duty of 25 percent, imports didn’t really take a big hit.

Efforts to stimulate domestic manufacturing, like the DCR (Domestic Component Requirement) proviso in rooftop subsidy schemes, or the massive 12 GW PSU scheme, have failed to have the desired impact, due to tardy progress.

It is thus, quite obvious that the challenges to manufacturing in the solar sector are not much different from other sectors. They are more about domestic limitations, than any concerted effort by external firms to take over this market. Keep in mind that the record low rates and volumes we have seen in the past 4 years are also in large part due to the same imported equipment, which has made solar competitive with thermal energy at many levels, a situation that you will be hard pressed to find anyone predicting in early 2015. Of course, the additional demand from India has no doubt helped the biggest global firms, including Chinese firms, sustain high research costs, which makes them even stronger today.

On balance, considering India’s committed goals, long term solar plans and the genuine case for more domestic manufacturing, one hopes the government will make the right decisions, and not knee jerk reactions that will further push back domestic capacity creation, and  even make domestic consumers pay yet again with higher prices for solar power.

A domestic manufacturing push needs to see a lot of groundwork in terms of the approval process, access to capital, creating a pipeline of demand, and most importantly, ensuring it is competitive with global manufacturing. In an ideal world, that will mean less tinkering with duty structures right now, and more focus on the project pipeline beyond 2022, when domestic plants started now will come on stream.

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