India has shown a remarkable performance in the growth of the solar sector and has received global acclamation in the same. Be it setting up of the International Solar Alliance with France or playing a pivotal role during the negotiations at COP 21 at Paris, the Indian government is leading the global fight against climate change. India had taken a very calculated decision to increase the share of renewable energy in its electricity mix. Under the National Action Plan for Climate Change, a target of 20 GW of solar installations was announced in the year 2010 which was later revamped to 100 GW of solar and 75GW of other renewable energy sources by the year 2022. From less than 10 MW by the FY 2010, the country has seen an impressive growth to achieve a cumulative growth of 10 GW by the FY 2017.
REALITIES OF REVERSE BIDDING:
For most of the projects auctioned in India, the government relied on reverse bidding which brought the prices of solar power to less than INR 3/unit in 2017 from nearly INR 15/unit in the year 2010-11. While reverse bidding was helpful in reducing the price of solar power; it was seen that lot of developers historically won their bids based on price speculation of solar modules which constitute 50-60% of the module costs.
Unfortunately nearly 85-90 % of the modules used in India now are manufactured in China leading to huge dependency on one country. Take for instance, the recently concluded Bhadala bid, which saw solar tariff reach record low of INR 2.44/unit.
- It was estimated that solar module prices would fall to USD 23 cents/watt to achieve the desired tariff.
- The anticipated price drop did not take place due to extension of feed-in-tariff programme in China.
- This meant that the prices of solar modules are still hovering around USD 32-34 cents/watt.
In the previous financial year, many PSUs had extended the project deadlines in anticipation of further drop in module prices. Many utilities had even asked for renegotiation of PPA once the projects were commissioned. Such speculation in prices can lead to projects becoming unviable or unnecessarily being delayed.
Huge dependency on imported modules has affected the domestic solar module and cell manufacturing industry.
- While the solar installations became 1,000 times of what it was in the year 2010 (10 GW from 10 MW), the module manufacturing industry only increased by 37 times of what it was in 2010 (7.5 GW from 200 MW).
- According to a 2014 research report by CEEW on India’s solar policies, the Indian solar manufacturing industry was globally competitive till the year 2010 and was exporting solar modules to countries like Spain, US, Germany and Italy.
- RCA or Revealed Comparative Advantage, is a factor which highlights a comparative advantage of a country in a given good relative to other good in a given set of countries.
- Incidentally, RCA of India for solar modules was more than 1 for India for most of the period till 2010, which meant that India was able to successfully compete with countries like China, US and Japan on the global scale.
- However, recession coupled oversupply of Chinese and US modules (supported via low cost of finance) made a huge impact on the domestic industry.
- While the government supported the Indian solar industry initially by mandating DCR procurement, the programme could not last for long as it was successfully challenged in WTO by USA.
The Indian solar industry with a cumulative manufacturing capacity of 5-7 GW of crystalline solar modules and nearly 2 GW of crystalline solar cells has to compete with the China, which has a total manufacturing capacity of more than 100 GW and 80 GW of crystalline solar modules and solar cells respectively. The Indian government needs to support the domestic manufacturing industry so that it is able to compete with Chinese companies, which are receiving government support at various stages.
There are few examples in India where the state utilities have set a non-conventional and unique condition for procurement of solar PV modules, that is – Tier 1 rating along with an insurance backed warranty of 25 years. While India does have, a few tier 1 manufacturers, an insurance product for the same is not available in India. This means that Indian players are out of contention. The only way to set up the plant with economically viable is to resort to Chinese modules, which meet the desired specifications. For lack of economical options on insurance product, Indian module manufacturing companies will not be able to supply modules for the power plant despite being fully capable of doing so. Hence, in addition to artificial price competition, some policy bottlenecks have also hurt the domestic solar industry therefore failing to provide Indian companies an equal opportunity and platform to compete. While these examples are outlier in the larger scheme of things, larger policy framework is required under which various organisations can procure solar power – like fixing the share of domestically produced modules in the project.
The prices of solar modules have dropped drastically in the past couple of years and even mandating government organisations to procure panels produced domestically will not hurt the ex-chequer.
- The difference in domestic and imported modules has reduced to USD 2-3 cents/watt from a difference of USD 10-15 cents in the past 5 years.
- Hence, any support to domestic manufacturers will in fact have a lower impact than imposition of GST (5%) on the solar modules.
- Encouraging domestic module manufacturing companies will also lead to increase in jobs, reduce the forex outflow and increase India’s energy security.
- Huge dependency on imported modules can also have huge impact on the 100 GW solar dream.
- The methodology to discover prices by reverse bidding may also need a revision because of wild speculations by the developers which may in turn hurt the industry.
- Given that the prices of solar panels have reduced drastically and the anticipated reductions are artificial, the government may again rethink the possibility of introducing FiT which can lead to healthy growth of the solar industry.
- The government must through various means also support domestic manufacturing companies by providing necessary CAPEX support, mandate usage of domestic modules, explore possibilities of imposing safeguard duties like Europe and USA, promote projects based on domestically produced high efficiency modules and incentivise R&D.
We should learn from our experience of ultra-mega power thermal power plants which were set up based on low prices of imported Indonesian coal. The rise of coal prices has made the projects commercially unviable.
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