India’s solar energy sector appears to have hit a road bump. Corporate funding in the solar sector fell by 65% to USD 2 billion in the three months ended March 31 from the USD 5.7 billion raised in the fourth quarter of 2017, according to Mercom Capital Group, a clean energy consultancy.
India’s solar power capacity addition is likely to drop 40% to a range between 4 GW and 4.5 GW in the current financial year owing to the recent slowdown in tendering and project award activity, findings by research and ratings agency ICRA have revealed.
This comes at a time when there are issues around the anti-dumping duty (ADD) on solar panels and modules, which have caused some uncertainty in the sector.
It began after the Indian Solar Manufacturers’ Association (ISMA) – the representative body of the domestic manufacturers of solar cells, modules and panels – approached the Directorate General of Anti-Dumping and Allied Duties (DGAD), requesting an imposition of a duty on importers of cheap solar inputs.
In March 2018, however, it withdrew the petition it had filed in July 2017 for anti-dumping investigation on solar cells and modules imported from China, Taiwan and Malaysia, and said it would file a fresh plea, seeking to extend the period of investigation after a considerable increase in solar imports was noticed in the second half of 2017.
We had filed the petition for ADD on solar cells and modules, covering the period of investigation till June 2017. However, the import trends since then have made the period of investigation irrelevant.Indian Solar Manufacturers’ Association (ISMA)
Anti-Dumping Petition
With an increase in the volume of imports of cells and modules by 33% to 45% between July and December last year, it was imperative to “contemporize” the period of investigation, it said. The period of investigation for the petition, which has now been withdrawn, was April 2016 to June 2017.
“Although the manufacturers have withdrawn the petition, they are expected to re-file the same after revising the period of investigation,” according to Mudit Jain, senior manager at clean tech consultancy Bridge to India. Considering the time taken for such proceedings, the duty could be imposed only by the middle of 2019.
Jain added that it is not expected to have any impact on the sector as a provisional safeguard duty of significant quantum has already been proposed. “If at all ADD is imposed, either it will be subsumed in safeguard duty or vice-versa,” he told indiaclimatedialogue.net. “Either way, its impact will be minimal as safeguard duty is likely to be imposed by that time.”
Currently, solar power plants using domestic solar cells have been subsidised through Viability Gap Funding (VGF) to enable domestic manufacturers to remain competitive in the local solar power market. Most of the big projects, however, have been using Chinese modules, which are way cheaper than subsidised Indian ones.
Indian solar manufacturing industry has been under significant stress due to dumping of cells and modules by China since 2011.
It cannot be the Indian mission to have its solar programme subjugated to Chinese manufacturers in perpetuity. DCR (domestic content requirement) was an effective tool to nurture solar manufacturing in India. This resulted in a substantial increase in manufacturing capacities of cells and modules between 2015 and now. While cell manufacturing capacity increased from under 1GW to 3.2GW, module capacities increased to 9GW per year. However, once the DCR programme was discontinued under WTO strictures, duties were the only route left to nurture and enable the growth of domestic manufacturing. It must be realised that Indian solar manufacturers are seeking justice as under the laws, and not subsidies.Dhruv Sharma, Director, Governing Council, ISMA.
The current manufacturing capacity in India, Sharma explained, is approximately 3.2GW for solar cells and 9GW for modules. “As the duty gets announced and there is demand visibility for domestic manufacturing, we anticipate aggressive investments in new manufacturing capacities by existing manufacturers and by Chinese manufacturers,” he said. “We estimate that Indian manufacturing capacity will increase to 7.5GW of cells within a year of the announcement. This can go up to 15GW within 15 to 24 months, on implementation of projects announced by Chinese manufacturers.”
Manufacturing Ecosystem
The ADD, he believes, will enable a solar manufacturing ecosystem which in turn will create 250,000 jobs, enable self-sufficiency in renewable power, provide a platform for R&D and make India an alternate supplier of solar products to the global markets.
Logically, some of the demand for cells and modules will be met through imports from Thailand, Vietnam (both exempted from duty) or duty paid imports from China. This will definitely not derail the Solar Mission, Sharma said. “On the contrary, it will make it a Made in India feat.”
However, others in the solar sector are of the opinion that India’s target of generating 100GW by 2022 is massive and it is highly unlikely that local capacity alone can match it. Also, since compliance with global trade regime is required, anti-dumping can be challenged at trade forums. They feel that there should be a rational mix to allow imported and domestic parts.
“Anti-dumping, if implemented, would make projects costlier and with dropping bid-rates, it is expected to hamper any new bids with other costs remaining the same and domestic lending rates firming up,” an industry expert said, speaking on condition of anonymity.
In January this year, the Director General of Safeguards proposed a 70% safeguard duty on imported solar cells and modules after a petition was filed by ISMA again. Following the move, there was unrest in the sector, with some developers voicing that it would have a negative impact.
According to another source, ISMA had asked for the duty, stating that the damaged and cheap solar cells were impacting indigenous manufacturing units. Moreover, Chinese dumping of products in India was accentuated owing to duties enforced by the European Union and the US on Chinese imports, causing them to divert all the stock to India at a cheaper price than the cost, in most instances. While the outcry has been that the duty be imposed retrospectively, the existing cost of plants will be impacted and the viability in terms of funding would have to be revisited, making the project commissioning questionable.
Currently, 90% of solar photovoltaic cells are imported (mostly from China) and this does little to develop local manufacturing capability, even though India has been on the forefront of renewable project development. Hence to address the issues of job creation, local tech development, research and development, infra investments, reduction in trade deficit, and higher local tax collections, the government has been planning to impose a safeguard duty. Without doubt, this augurs well for local manufacturers, but the cost impact would be substantial, leading to higher tariffs, the source cautions.
Agreeing that the move caused unrest, Jain said, “The MNRE (Ministry of New and Renewable Energy) is making all the right noises about exempting the tenders, which were tendered before imposition of safeguard duty from duty impact. However, the protection is not available for the private market (both rooftop and open access), where MNRE or state nodal agencies are not directly involved. As a result of these uncertainties, the private market has largely been stagnant in past few months.”
“It is inherent in the nature of the process that there would be a degree of uncertainty till such time that the actual duty is imposed,” Sharma told indiaclimatedialogue.net. “While the recommendation for safeguard duty is 70%, there is no clarity on what will be imposed and from when the duty will be imposed. However, this should get addressed soon, since we expect the government to announce the decision early.”
No Cause for Concern?
While some experts have stated that levying ADD on imports of solar cells and modules from China, Malaysia and Taiwan has the potential to make India’s module manufacturing capacity non competitive, Sharma claims that with a local manufacturing capacity exceeding 10GW in solar cells and more in modules, along with duty free access to cells and modules from Vietnam and Thailand (combined capacity close to 10GW), there will be a substantial supply base to create a healthy competition and keep prices at optimum levels.
Concurring, Jain adds that even with the imposition of ADD, projects must still be viable for developers to continue building the project. “The market itself shall restrict any significant increase of prices or make India’s module manufacturing non competitive in a meaningful manner.”
Experts reason that ADD is aimed at shielding domestic manufacturers from irrational costs, which are unjustified given the break-up value of inputs costing more than the final product. Hence, in the long term, any sector has to be globally competitive in both price and quality to sustain; the same holds true for Indian module makers as well.
Need of The Hour
Sharma avers that it’s a choice in principle. “Should the Indian Solar Mission be perpetually dependent on China?” he asks. “Should solar manufacturing jobs be harnessed in China and not in India? Can India maintain its global leadership of ISA (International Solar Alliance), with no manufacturing base and all manufacturing left with China? Can we afford to spend $45 billion to import cells and modules in the next four years, and continue to spend more as our requirement increases?”
“This is clearly the inflection point and the government must use its solar programme to develop a manufacturing base in India that will compete with China for a share in global markets,” he adds.
Jain adds that given the global supply chain condition, it is highly unlikely that module availability will be a concern for the next two to four years. As is evident from past examples globally, protectionist measures seldom lead to establishment of manufacturing facilities, he said, adding that a long-term, positive outlook on the market, along with supportive policies, would be required to promote manufacturing.
This story was first published on India Climate Dialogue and has been republished with permission.
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