7th June – India needs a solar manufacturing strategy

The Prime Minister’s emphasis since 2014 has given a new fillip to solar power installation. The unit costs of solar power have fallen, and solar energy has become increasingly competitive with alternative sources of energy.

solar manufacturing strategy

The gigantic leap –

  • India expanded its solar generation capacity eight times from 2,650 MW on May 26, 2014 to over 20 GW on January 31, 2018, and 28.18 GW on March 31, 2019.
  • The government had an initial target of 20 GW of solar capacity by 2022, which was achieved four years ahead of schedule.
  • In 2015, the target was raised to 100 GW of solar capacity by 2022.

The state of manufacturing –

  • According to the Ministry of New and Renewable Energy (2018), India has an annual solar cell manufacturing capacity of about 3 GW while the average annual demand is 20 GW. The shortfall is met by imports of solar panels. Imports, mostly from China, accounted for 90% of 2017 sales, up from 86% in 2014.
  • Substituting for imports requires human capabilities, technological capabilities and capital in the form of finance.
  • The capital expenditure and technical know-how needed for production processes decreases from the first item to the last, i.e. silicon production is more capital-intensive than module assembly.
  • Most Indian companies are engaged in only module assembly or wafer manufacturing and module assembly. No Indian company is involved in silicon production, although a few are making strides towards it.
  • While the safeguard duty now puts locally made panels on par with imported ones in terms of cost, the domestic sector needs to do a lot more to be effective. For instance, it will have to go down the supply chain and make the input components locally instead of importing them and putting the modules together here. Public procurement is the way forward.

Lessons from China

China’s cost advantage derives from capabilities on three fronts.

  1. The first is core competence. The six largest Chinese manufacturers had core technical competence in semiconductors before they turned to manufacturing solar cells at the turn of the century. It takes time for companies to learn and put in action new technologies. State governments need to support semiconductor production as part of a determined industrial policy to develop this capacity for the future.
  2. The second source of cost advantage for China comes from government policy. The Chinese government has subsidised land acquisition, raw material, labour and export, among others. None of this is matched by the Indian government. Perhaps even more important is commitment by the government to procure over the long run — without that the investment in building up the design and manufacturing for each of the four stages of production of solar power equipment would come to nought.
  3. The third is the cost of capital. The cost of debt in India (11%) is highest in the Asia-Pacific region, while in China it is about 5%.

Steps taken until now –

  • In the solar panel manufacturing sector, the Indian government allows 100% foreign investment as equity and it qualifies for automatic approval.
  • The government is also encouraging foreign investors to set up renewable energy-based power generation projects on build-own-operate basis.

Way forward –

India needs a solar manufacturing strategy, perhaps like the Automotive Mission Plan (2006-2016), which is credited with making India one of the largest manufacturers of two-wheelers, three-wheelers, four-wheelers and lorries in the world. This would also be a jobs-generating strategy for an increasingly better educated youth, both rural and urban.

SourceThe Hindu

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