Production linked incentives no silver bullet for India’s solar sector

PLI;scheme will escalate costs and still leave India reliant on China, developers say
Photo: iStock
Photo: iStock
Published on

The production linked incentive (PLI) scheme on solar modules, given the go-ahead by the Centre September 21, 2022, is not the silver bullet it is being touted to be by the government and some industry watchers, solar developers have told Down To Earth (DTE).

The scheme won't protect and incentivise India’s solar sector. Rather, it will make the sector unattractive. The scheme would escalate costs. Also, only a small part of the value chain will be indigenised and India will still have to depend on imports from China, they added.

The Union Ministry of New and Renewable Energy (MNRE) had, in March 2022, allocated Rs 4,500 crore to support the manufacture of high efficiency solar photo voltaic (PV) modules by providing PLI on the sales of such modules.

Letters of award were issued to eligible successful bidders. An additional outlay of Rs 19,500 crore was also announced in the Budget 2022-23 February 1, 2022.

MNRE secretary Indu Shekhar Chaturvedi had told reporters September 21 that the first and second phases of PLI would add 74 gigawatt of module manufacturing capacity. Additionally, an investment of around Rs 94,000 crore was estimated in the sector, Chaturvedi said.

Vibhuti Garg, director (South Asia) at Institute for Energy Economics and Financial Analysis, told DTE that the PLI scheme would help in building a huge domestic manufacturing base. This would be not only for cells and modules, but also polysilicon and wafers which was missing in the Indian market.

“The government will be able to provide backing and reduce the risk through this scheme and bring in more investments to the production and manufacturing of the entire value chain for solar power deployment,” she said.

Solar developers would be better able to manage costs through backward integration and pass on the benefits in the form of reduced prices to consumers.

“Also, it will protect the country from any supply side disruption which was witnessed during the onset of Covid-19 and then the Russian invasion of Ukraine. It will help India become more self-reliant and protect itself from the vagaries of price volatility of imported modules and cells,” she added.  

‘Solar will become unattractive’

“The way PLI has been designed and the way the government has gone about selecting prospective manufacturers who will be the beneficiaries for this scheme, leaves a lot to be desired,” a solar developer told DTE on the condition of anonymity.  

The developer added that the government was not only giving the solar industry tariff and non-tariff protection, but was also incentivising domestic production, instead of regular tools like investment subsidies or infusion of action capital.

“As a policy measure, either incentives can be initiated or barriers can be put up to protect Indian industry. But this time, the government has gone overboard and given the solar sector both,” the developer said. This might work, but will come at a huge cost, he warned.

He also pointed to the fact that the six per cent PLI to be given to a developer was to be funded from the exchequer.

“The six per cent PLI is going to be funded from the exchequer. This will drive the cost of energy to a high level. In fact, it is rendering solar unattractive as compared to fossil fuels,” the developer said.

He added that the irony was that if India were to import coal, it would have to pay one per cent customs duty and if it were to import solar panels, it would have to pay 62.5 per cent. “All this when a claim is being made that we want to transition to clean energy,” the developer said.                

Vinay Pabba, chief operating officer of Vibrant Energy agreed. He said the huge burden on the Indian power consumer was not being talked about in the entire debate.

Utility tenders will pass on the burden of high import duties to power distribution companies (discoms) which, in turn, will pass this on to power consumers.

“Recent tenders have already breached the psychological Rs 3 per kilowatt-hour barrier which is an inflection point and could tilt the scales in favour of brown power. In the commercial and industrial market, a Rs 3.5 to Rs 4 / kwh is already the norm. PLI subsidy is a more of a general burden on the taxpayer,” he said.

As far as self-reliance is concerned, the solar value chain was slightly different compared to other sectors, the developer said. It was skewed towards the upstream, where a large proportion of the value was captured in silicon ingots.

“If we look at the value addition in every stage, the highest is where silica is converted into the ingot which is the biggest piece and main source of value. Unless we can tackle that, indigenisation of other parts of the value chain may yield minimal benefits,” he said.

Thus, India would continue to be dependent on China, even if it made solar cells or modules. Unless it tackled the source (ingot), it would not really move the needle, the developer said.

Pabba said PLI did not have any value addition or domestic content requirements. The imports would simply move from final products (cells and modules) upstream to wafers and ingots.

“The scheme will promote the assembly of modules and the manufacture of solar cells to an extent. By not having value addition criteria, dependency on imports would continue. The only difference would be that it will now move to raw materials and components. Instead of vulnerability at the cell / module level, the dependency will now be on wafers and ingots,” he stated.

By not insisting on domestic value addition as a normative metric, the PLI scheme does not force the indigenisation of raw materials. Glass, aluminum frames, back sheets, EVA and silver paste will continue to be imported and the current account deficit may actually increase because of this, he added.

Related Stories

No stories found.
Down To Earth
www.downtoearth.org.in