Earlier mandate of domestic content requirement only for crystalline silicon technology led to most developers importing cheaper thinfilm solar panels
The Union Ministry of New and Renewable Energy (MNRE) may mandate domestic purchase of both crystalline silicon and thinfilm technologies used in making solar panels in the second phase of the Jawaharlal Nehru National Solar Mission (JNNSM). Domestic content was mandated only for crystalline silicon technology in phase one of the mission ending this March. While this is good news for the domestic industry, project developers have expressed reservations.
“We are not sure right now but it is likely that this time we will not discriminate between the two technologies. If we mandate domestic content for crystalline silicon, we will do the same for thinfilms also,” said a senior official with MNRE. In phase one, the project developers who wanted to use crystalline silicon technology were mandated to buy from domestic industry, while those wanting to use thinfilm technology were free to import it from outside. This strategy backfired as around 50 per cent of the projects in batch one of the first phase were of imported thinfilm technology. The percentage increased to around 70 in batch two of the first phase, while the domestic industry bled heavily.
Most project developers opted for importing thinfilm panels because they were cheaper than India-made panels of crystalline silicon technology. Besides, developers got cheap project financing from Export- Import (EXIM) bank of the US, which mandated that to avail loan, they will have to import panels from the US. And, importing crystalline silicon panels was not allowed. “The ministry had kept thinfilm technology out of domestic content requirement because India does not have enough players and experience in this sophisticated technology. We still do not have it. But we are planning to work around it. Maybe, we will ask for foreign players to set up shops in India,” said the MNRE official.
Even the draft guidelines for phase two of the national solar mission, released last month, is not clear about domestic content requirement. It lists six options. These include: for all photovoltaic projects only the cells and modules produced in India should be used, and price preference would be given for domestically manufactured cells.
Rahul Gupta, managing director of Indosolar, a Noida-based solar panels manufacturer, says he would be happy if all photovoltaic projects use domestic content. “This will bring a surge in capacity creation, especially by overseas companies and we will create the 5 GW base and eco system that we desperately need to fulfil the growing demand for solar energy,” says Gupta.
However, Gaurav Sood, managing director, Solairedirect, a Pune-based project developer, says the ministry should be very careful in mandating domestic content at all as such measures may prove counter-productive. India should focus on producing low cost power, he says. Today, procuring modules from Indian manufacturers costs him substantially more per MW; what's more, the Indian modules lack bankability. “This can be brought down if I am free to choose efficient and bankable products at low cost from anywhere,” he adds.
Inherent problems with domestic industry
Mandating domestic content does not necessarily ensure that it is actually domestic. Some Indian manufacturers are importing the equipment from outside and pasting their label on it, alleges a project developer who wished anonymity.
Domestic content requirement is a serious policy and politically vexed issue, says Ashwin Gambhir, policy researcher with Prayas energy, a Pune-based non-profit. On one hand is the possibility of low-cost solar power on the basis of cheaper imported modules with access to low cost debt. This leads to higher deployment and thereby increased jobs in project construction and long-term operation and maintenance cost.
On the other hand, is somewhat higher tariff but with incentives and protection in the case of the domestic module and cell manufacturing industry. While the JNNSM has an important objective of promoting the solar manufacturing industry in India, it remains an open question whether a domestic content requirement (DCR) would be an adequate response in the current global dynamics of the solar PV sector, he adds.
Gambhir also highlights that the existing solar manufacturing set-up in the country has a number of inherent disadvantages like continued dependence on imported wafers, poly-silicon, older non-integrated set-ups at higher costs, in comparison to new industry set-ups. These factors are leading to quite sub-optimal conditions in which Indian PV manufacturing is taking place.
Hence, it would be very difficult to compete on price with PV production from newer industry set-ups and more so if these set-ups were highly incentivised (as has been claimed of the Chinese PV industry) and while the global glut on module supply remains. “Therefore, just a domestic content requirement would be an inadequate response for incentivising setting up of world class PV manufacturing in India,” says Gambhir.
Mandating domestic content for both technologies will give a strong boost to Indian module sales, but only in the short run, says Mohit Anand, senior consultant with Bridge To India, a Delhi-based renewable energy consulting firm. Such a policy avoids addressing the deeper shortcomings in the current business models of Indian suppliers, he adds. Anand elaborates that to be competitive in the Indian market, Indian suppliers will have to be globally competitive either through price leadership or technology leadership. In the Indian context, price leadership is paramount. Current leading global suppliers are highly competitive on price through government funding and large-scale manufacturing. Indian suppliers need to catch up on both these accounts to be able to secure sales in the long run.
Therefore, experts feel that mandating domestic content alone may not help, and a far more long-term and integrated view needs to be evolved, and serious industry players backed by latest technology and R&D need to be incentivised for setting up large-scale integrated manufacturing facilities.