WTO rules against India's domestic content requirements in solar power

Wednesday 02 September 2015

The complaint alleged that the DCR mandate put into place by India discriminated against US exports and favoured Indian manufacturers

Experts say the US is dumping subsidised solar panels on India to further the interests of its own solar companies (USAF/Wikipedia)

India lost another case against the United States last week when the World Trade Organization (WTO) ruled that domestic content requirements (DCR) in India's solar power development programme conflict with international rules of imports.

The verdict was, however, expected as WTO had also ruled against local content requirements of Ontario’s Green Economy and Green Ecology Act (GEA) in 2013 on grounds that they were discriminatory towards imports. DCR mandates that both solar cells and modules used in a power plant are manufactured in India.

In June this year, WTO had ruled against the Indian ban on import of poultry meat, eggs and live pigs from the US, stating that it was not consistent with international norms.

The context

On February 11, 2014, the US had filed a second complaint against India and the second phase of its National Solar Mission at WTO. It said India's programme violated trade agreements between the two countries by restricting US companies from doing business in India. The complaint alleged that the DCR mandate put into place by India discriminated against US exports and favoured Indian manufacturers of solar panels and cells.

Indian manufacturing capacity of solar cells and modules is limited to 1,386 MW and 2,756 MW respectively. The Mission's target at the time of the complaint stood at 10,000 MW to be achieved in the period from 2013 to 2017. Since the solar target has been revised to 100,000 MW or 100 GW by the Modi government, the target now stands at 29,000 MW.

In the second phase of the Mission, India announced three batches of solar power projects. In the first batch, 50 per cent of 750 MW was supposed to be under the category of DCR. In the second batch, the share came down to 33 per cent (500 MW out of a total allocation of 1,500 MW) and in Batch III, it was further reduced to 10 per cent (only 200 MW out of 2,000 MW under DCR).

Essentially, the entire tussle at WTO was over 1,075 MW (375 + 500 + 200) or just 0.37 per cent of the total solar target in the second phase. But when the petition was filed, it mentioned the 375 MW of solar power to be installed under DCR.

Condemning the US’ complaint last year, Chandra Bhushan, deputy director general of Delhi-based non-profit Centre for Science and Environment, said, "The US has been dumping subsidised solar power panels in India. It is browbeating India to further the interests of its own solar companies. It is the US which should be made answerable at the World Trade Organization."

Bhushan pointed out that the US Exim Bank and the Overseas Private Investment Corporation (OPIC) had been offering low-interest loans to Indian solar project developers on the mandatory condition that they buy the equipment, solar panels and cells from US companies. This distorted the market completely in favour of US companies.

India’s commerce secretary, Rajeev Kher, alleged that the US itself is following restrictive policies for its local solar panel manufacturers in 13 of its own states by running a subsidy programme for local content requirement, primarily in the states of Connecticut, Delaware, Massachusetts and Minnesota.

WTO itself recognises the concept of public procurement. It states, "Government agencies often purchase goods and services with public resources and for public purposes to fulfill their functions and sometimes to achieve other domestic policy goals, such as the promotion of specific local industry sectors or social groups. Such purchases are generally referred to as government/public procurement."

However, it failed to recognise the Indian government's paying of feed-in tariffs and viability gap funding (through public funding) for procuring power produced by indigeneously manufactured solar cells and modules as public procurement.

"We will appeal against the judgment at WTO’s highest court, the appellate body, which could give us two years’ reprieve. There can also be a bilateral arrangement with the US since it is an important trading partner," an official from Ministry of Commerce told the media last week.

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  • Most of the solar PV plants built in the last two years have been driven by US, China or German vendor financing.The vendors would obviously try to sell their equipment along with the financing package.There is very little that India can do about it, given the nature of awarding projects through the absurd reverse bidding process, which has seen some ridiculously low tariffs being bid.What really matters to the developers is to get any panel or inverter vendor abroad who can offer the cheapest terms of finance.This should be fine as long as the quality and reliability of the plant is not compromised.

    What we need from the developer is to carry out a detailed due diligence when selecting technologies,layouts and designs,and ascertain clearly if the selected technologies,layouts and designs are the most suitable for the given weather and site conditions,and not rely fully on vendor claims.Unfortunately,it is the vendor financing which is driving the selection process.Many times,we end up with a sub-optimal asset.Any solar PV plant will generate some energy units,when exposed to the sun,and there is nothing great about it.What matters is whether the plant is optimally and reliably designed with the right components,and right protections,which can give the best of performance ratios(PR) with very little degradation in PR year on year in line with international standards.

    The domestic panel manufacturers had a great opportunity of making reliable panels meeting international standards,but with the chinese panel dumping onslaught,most of the manufacturers resorted to dilution of quality in buying cheaper raw materials,and dilution of quality checks in the manufacturing processes.Indian government should have set up an Import Inspection and Testing Agency to prevent import of low quality panels and inverters.

    Seshadri Akella
    MD
    Dakshesh Energy Pvt Ltd

    Posted by: Seshadri Akella | one year ago | Reply
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