GS3: Infrastructure: Energy, Ports, Roads, Airports, And Railways etc.

 

What is the issue?

  • India has made an ambitious target for its National solar mission and co-authored to start the International Solar alliance.
  • Despite making significant progress in solar power generation, India still relies on China for equipment. In this context, here is an overview of India’s solar manufacturing potentials and shortfalls.

BACKGROUND

  • The Prime Minister’s emphasis since 2014 has given a new fillip to solar power installation in India.
  • India has made significant progress in creating capacity for solar energy generation in the last few years.
  • The unit costs of solar power have fallen, and solar energy has become increasingly competitive with alternative sources of energy.
  • India expanded its solar generation capacity 8 times from 2,650 MW in May, 2014 to over 20 GW in January, 2018, and 28.18 GW in March, 2019.
  • The government had an initial target of 20 GW of solar capacity by 2022, which was achieved 4 years ahead of schedule.
  • In 2015, the target was raised to 100 GW of solar capacity by 2022.

India’s solar manufacturing potential at present

  • The supply chain of solar photovoltaic (PV) panel manufacturing is as follows: silicon production from silicates, production of solar grade silicon ingots, solar wafer manufacturing and PV module assembly.
  • The capital expenditure and technical know-how needed for these processes decreases from the first item to the last.
  • Moreover, silicon production is more capital-intensive than module assembly.
  • Most Indian companies are engaged in only module assembly or wafer manufacturing and module assembly.
  • No Indian company is involved in silicon production, although a few are making strides towards it.
  • Finally, India may not see domestic players, in the short term at least, replacing imported ones.

Requirement of Solar cells

  • According to the Ministry of New and Renewable Energy (2018), India has an annual solar cell manufacturing capacity of about 3 GW. But markedly, the average annual demand is 20 GW.
  • The shortfall is met by imports of solar panels. The government is a near monopsonistic buyer (the market condition that exists when there is one buyer) in solar sector.
  • India is regarded by the global solar industry as one of the most promising markets.
  • But the low-cost Chinese imports have undercut India’s ambitions to develop its own solar technology suppliers.
  • Imports, mostly from China, accounted for 90% of 2017 sales, up from 86% in 2014.

Reasons for the skewed growth of its solar industry

  • India is energy deficient, yet blessed with plenty of sunlight for most of the year.
  • Ideally speaking, India should have taken a lead in solar panel manufacture to generate solar energy long ago, but it did not.
  • So despite the new policy focus on solar plant installation, India is still not a solar panel manufacturer.
  • India has no real plan in place to ensure solar panel manufacture, much like a lack of a dedicated Industrial Policy.
  • [The share of all manufacturing in GDP was 16% in 1991; it remained the same in 2017.
  • The solar power potential offers a manufacturing opportunity.]

China’s advantage over India

  • China’s cost advantage derives from capabilities on three fronts.
  • Core competence – It takes time for companies to learn and put in action new technologies.
  • When the solar industry in China began to grow, Chinese companies already possessed the know-how.
  • The 6 largest Chinese manufacturers had core technical competence in semiconductors well before starting solar cells manufacturing.
  • In contrast, Indian companies had no learning background in semiconductors when the solar industry in India began to grow from 2011.
  • State governments need to support semiconductor production as part of a determined industrial policy to develop this capacity.
  • Government policy – The Chinese government has subsidised land acquisition, raw material, labour and export, among others.
  • None of this is matched by the Indian government.
  • Perhaps even more important is commitment by the government to procure over the long run.
  • This is crucial for investment in building up the design and manufacturing for each of the 4 stages of production of solar power equipment.
  • Cost of capital – Cost of capital is another advantage for China in this regard.
  • The cost of debt in India (11%) is highest in the Asia-Pacific region, while in China it is about 5%.
  • Sustaining exports – In 2018, China cut financial support to developers and halted approval for new solar projects.
  • As a result, Chinese producers will cut prices to sustain their manufacturing plant capacity utilisation by sustaining exports to India.
  • In other words, the Chinese strategy is to undercut any planned effort by India to develop the entire supply chain capacity within India.
  • It thereby ensures that dependence on imports from China continues.

India’s efforts in this regard

  • In the solar panel manufacturing sector, the Indian government allows 100% foreign investment as equity.
  • The sector also qualifies for automatic approval.
  • The government is also encouraging foreign investors to set up renewable energy-based power generation projects on build-own-operate basis.
  • But the Chinese government is clearly adopting an aggressive stance, exploiting India’s growing demand for solar power.
  • The safeguard duty on solar cells now puts locally made panels on par with imported ones in terms of cost.
  • But the domestic sector needs to do a lot more to be effective.

Government initiatives

  • The ISA’s major objectives include global deployment of over 1,000GW of solar generation capacity and mobilisation of investment of over US$ 1000 billion into solar energy by 2030.
  • The National Solar Mission is one of the eight missions of the National Action Plan on Climate Change (NAPCC). It will make India one of the largest Green Energy producers in the world.

Areas to be focused in near future

  • Remaining dependent on imports only leads to short-term benefits for India.
  • Substituting for imports requires human capabilities, technological capabilities and capital in the form of finance.
  • Making input components locally instead of importing them and putting the modules together here are essential for covering the entire supply chain.
  • Public procurement should be promoted with high priority.
  • The government is still free to call out bids for solar power plants with the requirement that these be made fully in India.
  • This will not violate any World Trade Organization (WTO) commitment.
  • However, no bids will be received as manufacturing facilities for these do not exist in the country.
  • If the bids are large enough with supplies spread over years, then bidders will emerge and local manufacturing can begin.
  • This is because it will give enough time for a green field investment to be made for manufacturing in India.
  • In all, India needs a solar manufacturing strategy, perhaps like the Automotive Mission Plan (2006-2016).
  • [The Plan is credited with making India one of the largest manufacturers of two-wheelers, three-wheelers, four-wheelers and lorries in the world.]
  • Most Indian companies are engaged in only module assembly or wafer manufacturing and module assembly. No Indian company is involved in silicon production, although a few are making strides towards it.

Way forward

  • India is regarded by the global solar industry as one of the most promising markets, but low-cost Chinese imports have undercut its ambitions to develop its own solar technology suppliers.
  • Imports, mostly from China, accounted for 90% of 2017 sales, up from 86% in 2014.
  • Substituting for imports requires human capabilities, technological capabilities and capital in the form of finance.
  • On the first two capabilities, the supply chain of solar photovoltaic panel manufacturing is as follows: silicon production from silicates (sand); production of solar grade silicon ingots; solar wafer manufacturing; and PV module assembly.
  • The capital expenditure and technical know-how needed for these processes decreases from the first item to the last, i.e. silicon production is more capital-intensive than module assembly.
  • While the safeguard duty now puts locally made panels on par with imported ones in terms of cost, the domestic sector needs to do a lot more to be effective.
  • Public procurement is the way forward. The government is still free to call out bids for solar power plants with the requirement that these be made fully in India.

# Practice Question

  1. Despite making significant progress in solar power generation, India still relies on China for equipment. Critically analyse the reasons for the stagnation of solar manufacturing in India. (250 words)
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