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Sunshine sector loses sheen

5 Comments
Aug 15, 2012 | From the print edition

About 40 kilometres from Delhi, in the bustling real estate market of Noida-Greater Noida, lies the biggest irony that the renewable energy industry faces. Indosolar, the country’s largest manufacturer of solar photovoltaic cells, has set up a 400 megawatt unit. Its entrance is slick and ultra-modern, typifying the product it manufactures. Stepping into the 28,000 square metre production unit, one is struck by the shimmering clean, futuristic and sleek production line, symbolic of the clean future that solar power promises.

Polysilicon wafers, the raw material, can be fed at the starting point. Solar cells, efficiently packed in boxes, can be collected at the end point. But none of this is happening. The production line stands still. One production line of Indosolar stopped making cells in January last year. The other was shut down a few months later in September. In fact, at present, 80 per cent of the country’s manufacturing capacity is shut.

Herein lies the irony. Why is India’s largest solar cell maker not producing at a time when the country is in the midst of implementing its most ambitious and arguably the world’s quickest solar energy mission?

The answer is simple, yet perplexing. “We have no orders,” says Rahul Gupta, who set up Indosolar in 2009. “We took the pains to get the most modern manufacturing units designed in Austria. Our in-house research and development increased the efficiency of our cells remarkably. As Rajasthan and Gujarat have gone into an overdrive and are installing hundreds of megawatts of solar energy, it should have been heydays for Indian manufacturers. Instead, there is bankruptcy, loan restructuring and pleas to the government for support against international competition,” he rues.

The sunshine industry, literally and figuratively, has been allowed to fade away. There are loopholes in the existing policies. While foreign manufacturers dump their products at dirt cheap prices in the country, domestic manufacturers are finding it hard to compete.

Kushal Pal Singh Yadav and Jonas Hamberg analyse what ails the country’s solar manufacturing industry and how it can be revived

The state-of-the-art manufacturing unit of Indosolar under forced closure

Going solar is no longer a bright idea for the four-decade-old photovoltaic manufacturing industry. This high-potential renewable energy sector has suffered a serious setback in India as much as across the globe. And the alarm bells are ringing loud.

In the 1970s, public sector companies Bharat Heavy Electrical Limited and the Central Electronics Limited were the first to make solar equipment in India. But these were primarily for research and development. In the 1990s, some more companies started small-scale manufacture of solar equipment. These were restricted to manufacturing for household applications. It was in 2006-07 that Moser Baer, an optical storage media manufacturer, set up the first commercial-scale manufacturing plant of 40 megawatt (MW) capacity. This was to make solar cells, an electrical device that converts light energy into electricity (see ‘Photovoltaic technology’,).

Manufacturing capacity in IndiaThe industry got the much-needed push from the ambitious Jawaharlal Nehru National Solar Mission (JNNSM), which aims to achieve 22,000 MW solar energy generation by 2022. The growing global demand led to mushrooming of domestic players. The cell manufacturing industry, that was mostly export-oriented and catered to the European market, started aggressive manufacturing anticipating a huge domestic demand coupled with the biggest ever increase in global demand for solar photovoltaic. India now has an installed manufacturing capacity of 2,000 MW for solar modules and 900 MW for solar cells (see ‘Manufacturing capacity in India’,). Nineteen cell makers are registered with the Ministry of New and Renewable Energy (MNRE). The country has more than 50 module makers.

But despite the good start, the entire solar manufacturing sector is in a state of collapse. More than 80 per cent of the units in India are closed. What went wrong?

The solar manufacturing sector, say analysts, followed the most optimistic projections for future orders and created a huge overcapacity build-up. Post-2004, after the feed-in-tariffs were announced in Germany, the industry went into an overdrive. Feed-in-tariff is the high rate that the government gives developers to promote clean but expensive energy.

In the global solar photovoltaic demand, the biggest jump happened in 2010. From a little over 7,000 MW in 2009, the demand shot up to close to 20,000 MW in 2010. This is when the cell manufacturing capacity increased extensively. According to estimates by Bloomberg New Energy Finance, world’s leading provider of industry information, the current global demand is about 30,000 MW. But the manufacturing capacity is double that.

European crisis

European countries, which drove the initial investments and supported the sector with attractive policies, were the ones responsible for the industry’s downfall. The countries initially gave significantly high feed-in-tariffs for generating power from solar technology.

Germany has been the leader in solar installations ever since it started giving high feed-in-tariff in 2004. By 2010, Germany accounted for 43 per cent of cumulative installed solar photovoltaic capacity, followed by Spain (10 per cent), Japan (9 per cent) and Italy (9 per cent). Till 2008, Germany had accounted for almost 50 per cent of the global demand for solar photovoltaic. Spain, which started giving feed-in-tariffs in 2006, has also been a big market. So has been Italy.

Rajasthan imports modules from the US for a project under JNNSM PHOTOGRAPHS:With overproduction and bulging solar power purchase bills, European governments started backtracking on their supportive policies for their manufacturers. Spain was the worst hit. Its government announced complete moratorium on support to solar projects. “Initially, when Spain had announced high feed-in-tariff for solar power, it had budgeted for 600 MW capacity. However, plants for 2,600 MW were set up. The country simply did not have the cash to support such a mega scheme,” says a manufacturer who did not want to be named.

No wonder, the prices of solar equipment plunged between 2008 and 2011. Photovoltaic modules cost 60 per cent less, estimates Bloomberg. Other estimates point to a greater decline. The price of polysilicon, the basic building block for polycrystalline solar cells and modules, has fallen from US $500 per kg in 2008 to US $25 per kg now.

This sharp fall in prices made governments wary of paying high feed-in-tariffs. “Moves by Spain and the Czech Republic to make retroactive cuts in feed-in- tariffs for the already operating photovoltaic projects damaged investors’ confidence,” states the report Global Trends in Renewable Energy Investment 2011 prepared by Bloomberg and the United Nations Environment Programme. “Other governments, like those of Germany and Italy, announced reduction in tariff for new projects—the logical step after a fall in technology cost. What caused concern was the fear that governments facing economic hardship may go back on the previously promised deals for the existing projects, damaging returns for equity investors and banks,” it adds.

No demand in India

The JNNSM provided the policy backing for domestic content for projects under the mission. In the first batch of the mission’s first phase, solar photovoltaic modules based on crystalline technology had to be sourced locally. In the second batch, both crystalline cells and modules manufactured in India had to be used.

The domestic demand did not cover the more contemporary and low-cost thin-film solar modules. MNRE allowed free import of thin-film modules on the ground that India had only one thin-film module producer—Moser Baer. The competition in JNNSM has, therefore, been between imported thin-film technology and domestically assembled crystalline silicon modules. But the competition has been far from fair.

Technology choice for projects under JNNSM has been heavily skewed in favour of thin-film modules which were cheaper. But the cost-benefit is neutralised because thin-film modules are less efficient. More thin-film modules are required to generate the same amount of electricity. This increases the demand for land. Almost 60 per cent of the projects under JNNSM’s first phase have opted for imported thin-film modules. Only 14 per cent of the modules produced globally are thin- film.

Global share of solar modules producedAlso, in state programmes like the Gujarat solar policy, that aimed to achieve 500 MW by 2014 but has already achieved its objective, it is not mandatory for project developers to buy equipment made in India. The developers prefer to import equipment from China and the US as they are cheap. Charanka Solar Park in Gujarat, Asia’s biggest with 214 MW operational capacity, has equipment mostly from the US and Chinese manufacturers like MEMC, Suntech Power and CSun. Moser Baer plants in Kamalpur and Zenabad in Gujarat have equipment from LDK, Trina and other Chinese companies, not from the company’s Indian manufacturing plant. Reliance Power’s 40 MW photovoltaic project in Rajasthan uses modules from First Solar, a US company. “Given the present state, how can domestic content requirement hold? Developers take solace in importing,” says Krishnappa Subramanya, former CEO of Tata BP Solar and now an independent consultant.

Only those Indian project developers who also make solar equipment buy equipment from their own plants. Tata Power’s 25-MW plant in Gujarat installs in-house Tata BP modules. Lanco Solar’s 35-MW plant in Rajasthan also installs self-manufactured modules.

Dormant industry

Despite efficient solar manufacturing, “only about 20 per cent of the manufacturing capacity in the country is operational,” says Rahul Gupta, managing director of Indosolar. The rest is dormant as there is not enough demand for Indian cells and modules, he adds. His own state-of-the-art plant in Greater Noida, which has two manufacturing lines of 90 MW capacity each, and another line of 200 MW that was still being set up, closed in September 2011.

Charanka Solar Park in Gujarat has equipment from the US and China

The company retrenched 170 staff, mostly engineers. Indosolar had made a combined investment of Rs 1,200-1,300 crore. The company’s last year’s balance sheet shows it lost about Rs 200 crore due to forced closure. “In 2010, what we produced in the morning was off to airport by the afternoon. Today, we don’t have clients,” says Gupta. The company lost clients in France, Lithuania, Italy, Hungary, Spain and Greece.

This is no isolated case. Maharishi Solar and Tata BP have similar stories to tell. Of the three Tata BP production lines, only one is working. The company had to remove more than 200 workers because of lack of demand. “India has lost the manufacturing plot. Very little of manufacturing capacity established in the country is operational,” says Subramanya. Eighty per cent of the Indian manufacturers are now negotiating loan repayment plans with banks because they do not have the money to clear the dues. Debt restructuring is often seen as a precursor to bankruptcy.

Industry is on the verge of collapse. The solar power sector has turned into a purely import business.

Photovoltaic technology
 

imageStage1: Sunlight
Materials like silicon absorb the energy emitted by the sun and turn it into electrical current. This is known as the photovoltaic effect, that causes them to absorb photons of light and release electrons

imageStage2: Solar Cells
A solar cell is a thin semi-conductor wafer, specially treated to form an electric field. Electrical conductors are attached to either side of it to form a circuit which captures the released electrons in the form of electric current

imageStage3: Solar Panel
A solar panel or module is a collection of cells that are electrically connected to one another. These modules are designed to supply electricity at a certain voltage, such as a common 12 volt system

imageStage4: Solar Power
Photovoltaic panels produce direct current (DC) electricity. An inverter is, therefore, required to convert DC to AC (alternating current), because we need AC to power our everyday gadgets and lights
 

Dumping ground

There is enough evidence that China, Taiwan, Malaysia and the US sell solar modules in India at rates much cheaper than in their own countries. The rates are lower than even the production cost. Anywhere in the world, the production cost of solar cells and modules stands between US 95 cents and US $1 per watt-peak. But foreign firms, mostly from the US and China, sell the cells and modules in India between US 65 cents and US 80 cents per watt-peak.

Obviously, these foreign companies are also suffering huge losses. Chinese manufacturer LDK lost US $600 million last year. First Solar, a US company, wiped out a billion dollars in losses in the last two quarters.

According to Bloomberg, China produces over half of the photovoltaic modules used globally and is home to many of the biggest brands. In 2001, China held only one per cent of the global market. In 2010, 55 per cent of the modules worldwide were produced by Chinese companies, 13 per cent by companies based in Europe, 18 per cent by the US companies and 13 per cent by Japanese firms. At present, four of the world’s top five cell manufacturers are Chinese, so are three of the world’s five largest module manufacturers.

Types of solar cells
 

There are two kinds of commercial solar cells in the market: crystalline and thin-film. Crystalline silicon is of two types: monocrystalline, made by slicing wafers from high-purity crystal block, and polycrystalline, made by sawing a casted block of silicon into bars and then into wafers. Polycrystalline is the most common technology. Thin-film cells are made by depositing layers of strong, light-absorbing materials on coated glass or stainless steel.

 

image

The US share has fallen from 27 per cent in 2001 to just five per cent now. More than 20 companies globally have either shut down or filed for bankruptcy. In 2011, at least six US companies filed for bankruptcy. Abound Solar, a US firm that has been the supplier for many projects under JNNSM, is the latest to file for bankruptcy. The companies operating at present, including the Chinese ones, have seen a sharp drop in their share prices. In some cases, it is as much as 97 per cent. Business is tough. But what makes the Chinese survive?

“They get strong government support. Among other benefits, the manufacturers get huge export credits, cheap loans and cheap land from the government. The country does not even use its own modules. China produces 32 times more modules than the Chinese market needs,” adds Gupta. This has led to a global trade war.

AddThis

A well researched and informative article. However, clear cut government plannning and the ability to implement measures seem to be totally lacking. Any suggestions on measures to formulate and implement a short and long term working policy. Who can do this? If one one leaves it to the govt, nothing much will happen for years!

3 August 2012
Posted by
Arun Guha

I agree with Arun Guha. clear cut government plannning is the need of the hour. In a number of externally aided projects either the funding agency tries to ensure that implementing/ executing agency is an off shoot of a company of the country of funding agency or products of that country are adopted for the project. If Rahul Gupta of Indosolar can put it on record that solar energy will be reliable and comparable in cost of generation of power from Diesel Gensets, then it should be possible to seek support of the Govt as well as the Environmentalists to go for Solar power because it will surely be eco friendly.
PK Jain

6 August 2012
Posted by
Anonymous

Nice article.But I feel other story of other side of coin also could be added to this aticle to make it complete. Among all other generation industry solar is the only industry with subsidy!!! comercial tarrifs in few states has already crossed the grid parity mark.there is very big market for roof top systems, there is very good opportunity for manufacturers to go for long term tieup with taking advantage of MNRE subsidy, REC and agreed energy generation tarrief with individuals. Peolpe should try to make the modules cost effective with local contents. As per i Know except glass, every thing is imported!!!!. there is opportunity to increase subsidiary industry. I agree chinise govt has given good tax exmptions. but at the same time, investors also have gone for volumes to reduce there cost. Wait for few more months. once subsidy on diesel is lifted, you will see shoot in PV market. With the present problems in coal mine issues, there is still a ray of hope for solar. Only threat is Nuclear. but due to japan incident, there will be heavy opposition for that.. cheer people.. this is hard phase for solar.. but not the end. new busness modules will evolve.. technology will improe due to pricing pressure and it will be back soon.. :) Rajendra Kulkarni

9 August 2012
Posted by
Rajendra Kulkarni

An article written with a preconceived conclusion of why there should be an absolute protectionisn in Indian solar market. The author should be a lobbyist for uncompetitive and inefficient Indian manufacturers by asking for complete domestic content. Indian manufacturers failed in the years when there was the highest growth in international markets 2010-2011. The author also shows his lack of knowledge of utility scale solar PV projects by not mentioning at all what bankers think of Indian manufacturers. Project financing is the bottleneck for solar in India. Most of the Indian banks would not finance modules of Indian manufacturers because they believe these companies cannot survive beyond a few years.
May be the author would have showed some maturity by asking government to support the industry through tax breaks, soft loans, etc. rather than suggesting complete domestic content.
This mentality of protectionism has resulted in Indian companies becoming incompetitive to China in every single manufacturing sector.

10 August 2012
Posted by
Anonymous

Outstanding article. I must congratulate Kushal Pal Sing..., Jonas Hamberg for their painstaking effort to go deep into the matter with critical analysis.
In India the Solar PV Manufacture got a boost expecting that there will be great demand. Everybody knows that present Solar Cell efficiency of the commercially available solar cells is low and obviously the cost of solar power production high. The trend in Solar Energy expansion is the same as earlier Wind Energy, started in 80s. The Prime Mover is Incentives by the Government. As it always happens liberal incentives offered by the Government for Renewables must be matched by the production. Hitherto the criticism for Conventional power is that there are hidden subsidies. But the same argument cannot be for Renewables. Unlike Conventional power, Renewables can be decentralized in many cases. As such the success of Renewables will have a chain reaction for expansion on a massive scale in a vast country like India.
In microeconomics, supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic for price and quantity.
The four basic laws of supply and demand are:
1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.
The above basic economics apply to Renewables as well.
Dr.A.Jagadeesh Nellore(AP),India
E-mail: anumakonda.jagadeesh@gmail.com

6 December 2012
Posted by
Dr.A.Jagadeesh

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