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Import v domestic: A perennial debate
Solar power sector in India is clearly divided into two camps over the government policy on manufacturing. While manufacturers rue they are running out of business because of dumping by foreign manufacturers, project developers criticise the domestic content requirement policy. Developers want to import at zero duty which they say will lead to large solar installations which, in turn, will lead to quick development of the sector, while manufacturers demand a level-playing field with global industry.
Rahul Gupta, managing director of Indosolar, and T R Kishore Nair, president of Welspun Energy Limited, a project developer, came face to face at a recent meeting organised by Delhi-based non-profit Centre for Science and Environment. Edited excerpts from the conversation
T R Kishore Nair: There is a mismatch between thin-film modules demand and supply as the existing manufacturing capacity is very limited and we have to import. Of course, most of the production lines are currently shut down, but the fact remains that even those who have manufacturing lines are using imported modules for their projects.
Rahul Gupta: When the global average penetration of thin-film is about 14 per cent of the total solar photovoltaic installations and in India it is about 56 per cent of the total modules, then definitely there is something wrong in India.
Nair: With cheap imported modules we are able to bring down the tariff to current levels, and this is driving demand. Domestic industry cannot match these low prices. High price of modules will drive away the demand. I am not saying do not support domestic manufacturing, but not in the current form of mandatory domestic content requirement. Rather, give subsidy to the industry to make them globally competitive and reduce module price. The tariffs will be Rs 2 higher than the current rates of around Rs 8 per kilowatt hour (kWh), which is what we quoted for our project under the national solar mission, if we buy domestic modules.
Gupta: It has actually not been possible at that particular tariff (Rs 8). Looking at financial closure of projects under the same phase of JNNSM like that of Mahindra Solar or Azure Power, the cost of the project is Rs 11-13 crore/MW thereby coming to a tariff of Rs 11 to Rs 13 per kWH while Welpsun bid at closer to Rs 8/ kWH because they could get cheaper modules in a distressed market. We say it cannot be done below Rs 10 crore/ MW or nine-and-a-half. I think Welspun did a fantastic job, because at the time they bid, nobody expected a 23 per cent depreciation in rupee (against the dollar). But, the situation is whether procurement is sustainable even after 23 per cent erosion in the rupee and also the fact that most of the foreign manufacturers have lost hundreds of millions of dollars including one of their (Welspun’s) suppliers.
Nair: When you are in the business, you take some risks. No developer is going to set up the project at Rs 9-10 tariff. We are ready to take up more projects worth 300 MW at Rs 8 even at today’s rate but with imported modules. So, rather than insisting on buying higher priced domestic modules, let the government come up with some more subsidies so that the domestic industry is also able to provide cheaper modules.
Gupta: There is one more distinction here. The imported modules are being dumped below production costs. Solar Manufacturer Association of India has already filed a petition with the Director General, Anti-Dumping, for level-playing field and if our case will validate the fact, then there will be additional anti-dumping duties on imported modules. This has got nothing to do with the domestic content, but with the WTO norms of level-playing field worldwide.
Nair: Let’s suppose imports are completely blocked and we have to use only domestic modules. What will be the tariff for solar power then? It will go back to Rs 15. Are you ready to pay this? I think not, meaning no new projects will be developed thereby killing the entire solar industry.
Gupta: No. I am saying that even if you quote a tariff of Rs 9, you can make double digit profit. You are able to quote tariffs as low as Rs 8 because you are able to import cheap modules due to the global distress scale. There is not much difference in manufacturing costs in India, China or Taiwan. But depending on desperation to sell and how much loss they can take, companies today are selling below production costs.
Industry is making losses in billions of dollars. Indian companies are able to quote the lowest tariff globally for solar photovoltaic precisely due to this reason. Today, there is a global problem of oversupply. Developers can demand a price and get it. But a correction in terms of demand and supply is going to take place in the next six to nine months. India has a focus on domestic manufacturing. If you consider the Indian conditions 95 cents per watt peak is our current manufacturing costs domestically. This means that at a tariff of Rs 9.50 per kWH, the Indian produced modules can be competitive.
Nair: If Rs 9.50 is a manageable tariff for manufacturers, and if the developers are forced to buy only domestically produced modules then tariff will obviously go up to Rs 9.50 and at this rate all the developers will pack up.