China’s gain, India’s pain
The country needs a quick revival policy for solar manufacturing
China’s emergence as the leader in solar manufacturing industry has completely changed the geopolitical equations in the global renewable energy industry. In the last decade, the country has captured more than half the global solar production capacity, all at the expense of Japanese, the US and European companies. And China is manufacturing at a massive scale.
While the largest Indian manufacturer has the cell production capacity of less than half gigawatt (500 MW), the average being less than 100 MW, Chinese manufacturers have the average capacity of more than 1 GW. This is the combined cell manufacturing capacity of all Indian producers. Even the US has an average manufacturing capacity of about half a GW. China’s total annual production is 20 GW.
Chinese manufacturers, like Trina Solar and Yingli Green Energy, control the manufacturing process right from production of polysilicon to assembling module. Vertical integration in the manufacturing process, meaning a company controls entire manufacturing chain from sand to module, lowers their production cost. India does not have this advantage because it does not have the capacity to manufacture polysilicon and wafers. The country imports most of the raw material from China.
Now, despite lack of demand, China has announced it will increase manufacture of solar modules. This will lead to more oversupply and a further slump in prices. The announcement is seen as the final blow to push rivals outside China to bankruptcy.
China has been able to script a success story because of huge government support. The Chinese government has identified the industry among its seven new strategic emerging industries. It can, therefore, take aggressive steps for solar power manufacturing. “China’s 12th Five Year Plan clearly articulates its goals for these industries,” states a report by US-based non-profit The Kearny Alliance. “The country’s five-year plans have proved successful. The 11th plan, for instance, designated clean energy technology (solar, wind, biomass and nuclear energy) for government support. China spent about US $309 billion on energy efficiency and environmental protection measures. Today, four of the world’s largest photovoltaic cell manufacturers are Chinese,” it states.
In addition, China has mandated that 80 per cent of the solar equipment and auxiliary materials for its own use to be produced domestically. Industry sources claim the Chinese government has dedicated a combined fund of US $1.5 trillion for its seven strategic emerging industries. Small wonder, Chinese companies can survive despite selling below production cost and suffering huge losses (see ‘Chinese support programmes’).
While the Chinese industry, buoyed by its government’s support, marches forward, the Indian industry seems to be on its death bed. Urgent and drastic steps are needed for the industry to recover. Multiple options are available.
The government had mandated domestic content requirement for crystalline modules. This, however, was not done for thin-film modules, a loophole project developers exploited, skewing the entire market in favour of thin-film. It is about time the Ministry of New and Renewable Energy fixes this and mandates that thin- film and crystalline modules, as well as cells are sourced from Indian manufacturers. State policies and other schemes such as renewable energy certificates should follow the same domestic manufacturing requirement. Photovoltaic manufacturers have benefitted from a 25 per cent capital subsidy given under special incentives package announced by the Department of Information Technology in 2006. Perhaps an extension of the same package is required for encouraging large-scale polysilicon, wafer and cell production in India.
India can also choose to take the Italian route. Italy’s solar policy for 2011-12 stipulates that developers get an extra 10 per cent on their tariff for 20 years if they use European modules. This would give Indian manufacturing a leg up on competition. There would, of course, be an added cost to the government because of this extra tariff. It would also mean adjustments in the bidding process where developers will have to confirm whether they would use Indian technology or not, before the winning bids are revealed. The Director General of Anti-Dumping (DGAD) is already considering the anti-dumping petition filed by Indian producers. If DGAD finds evidence, then anti-dumping duties need to be put in place.
The government needs to make it clear that the US Exim Bank funding is a disruptive trade tool that hinders Indian manufacturers from competing in the Indian market. There are indications that the government is gearing up to support a healthy domestic manufacturing industry for the solar sector.
Globally, the demand for solar is set to increase at a hefty pace in the coming years. China already has plans for installing 12 GW by 2015 and 50 GW by 2020. Huge demand is expected from Japan as well given the requirement for replacement of nuclear energy in the aftermath of the Fukushima disaster. Germany and other European markets, the US, the ever-growing markets in developing countries, and our own domestic market will fuel the demand for solar power. The manufacturers need to survive this phase to be able to compete with foreign companies in the coming years. India must decide today what it wants—a purely import-driven solar power industry that compromises energy security, or a robust domestic manufacturing base. The latter definitely seems the logical choice.