Need of the hour: Solar Adoption, not Project Cancellation

Indian Solar industry has shown incredible growth, with an inspiring trajectory of increasing capacities from 5 GW in 2015 to 10 GW in 2016 to ~24 GW growth in 2018. Although there is growth, India still has to install more than 18 GW of solar capacity each year for the next 4 years to achieve its announced 100 GW target. Considering this scenario, we should expect an aggressive solar adoption rate. However, India’s current solar growth would not be able to realize the 2022 targets.

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Current Scenario

A myriad of projects have been cancelled in the calendar year 2018, which begs the question of whether India would be able to reach current targets. Data shows that between Jan-September 2018, ~35 GW of solar projects were tendered. However, only 13 GW of projects were auctioned. There was a 65% decline in tender activity in Q3 2018, in comparison with Q2 2018.

The results are clearly seen in project installation trajectory. Although, solar installations in Q1 2018 was higher than Q1 2017 and stood at 3.3 GW, however, in Q2 2018 Indian solar installation rate started declining and stood at 1.6 GW in and fell even lower to 1.5 GW in Q3. Although we would want the solar installation rate to rise each quarter of a year, it is normal to see a decline in a few quarters. For example, solar installation rate had fallen in 2017 as well, however, the decline in 2018 is much higher than ever before (30% Y-o-Y), which paints a threatening picture for Indian solar industry.

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Reasons behind the Decline

25% safeguard duty on SEZ based solar panel manufacturers, demands of setting up a manufacturing facility to bid in projects, differential GST rates have increased solar project cost by 12-18% and produced hesitant solar developers bringing forth the decline in projects.

SECI cancelled 2.4 GW out of a 3 GW Interstate Transmission System (ISTS) connected solar auction held in July 2018.

  • The Gujarat Urja Vikas Nigam Limited (GUVNL) also cancelled the auction for the development of 500 MW of grid-connected solar photovoltaic (PV) projects in March 2018.
  • The Uttar Pradesh New and Renewable Energy Development Agency (UPNEDA) also cancelled 1 GW auction for grid-connected solar projects across the state held in July 2018.

The primary reason behind these cancellations is Government of India’s insistence to bring down solar tariff event further. Also, recent demands like asking developers to set up a manufacturing plant to win solar projects (e.g- SECI’s 10 GW solar project) have negative effects and produced hesitant developers.

India spent $3.8 bn on solar module import in FY 17-18, and in FY 18-19 (Apr-Oct), the country has already spent $1.1 bn, while India’s export of solar for the same years stood at a meagre $141 mn in FY 17-18 and $80 mn in FY 18-19 (Apr-Oct).

Additionally, 25% safeguard duty imposition on imported solar equipment and SEZ based solar manufacturing units have raised the equipment cost, making projects expensive while introducing low quality (imported) module usage issue and little to no demand for domestically manufactured solar equipment.

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Way Forward

Indian solar industry still has incredible opportunity to turn around and lead the global solar revolution, while speeding up solarisation of the country. However, for that to happen, India needs to realize that maintaining investor interest in building solar projects is a must.

And although imported modules offer a cheaper option for countrywide solarisation- It is producing hesitant developers by allowing tariff fall, shrinking India’s opportunity of building solar manufacturing industry, which would have created jobs, improved industrial infrastructure, brought revenue through exports.

Additionally, India’s dependence on solar import is leading to huge forex outflows, introducing quality issues, and making projects unviable.

Therefore, focusing on manufacturing, stabilizing tariff, exempting domestic manufacturers from safeguard duty and differential taxes (GST), would be the right move to increase solar installation rate. Forecasts show that continued import, falling tariff and other policy deviations (safeguard duty, differential GST) will result in lower solar demand in Q1 2019 (approx. 3.5 GW). Therefore, it is the best time for India to make changes and solve core issues to speed up solar project installation.

Is Safeguard actually Safeguarding?

India has quickly built an aspiring green energy empire that promised to lead economic development through industrial capacity expansion and domestic manufacturing. And considering Hon’ble Prime minister Shri Narendra Modi’s announcement of ‘Make in India’ we can agree that the country had plans to support and utilize the manufacturing sector to drive growth. And as we hoped for, ‘Make in India’ worked well in welcoming foreign investment, encouraging technological growth, and reducing knowledge curve. This indicated a rapid solarisation of the country and showed potential to uplift India’s economy through industrial expansion. However, the initiative has failed to result into the growth trajectory it promised to showcase.

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Opportunity Like Solar Needs Initiative Like Manufacturing!

The growth of our society is dependent on energy. And, since we have built our world using limited fossil fuel reserves, continuously shrinking reserves have created scarcity for energy, and given rise to energy cost. Currently, more than 1 billion people live without electricity and continuous fossil fuel generation has led to environmental degradation. World’s decision to opt for sustainable energy in such a scenario can be considered as a decisive step, right before we would have crossed the point of no return.

Opting for green energy transition can offer release from economic and environmental binds of fossil fuel. However, to unleash green energy transitions’ full potential, which promises to build a better economy and industrial structure for a country, countries need to focus on manufacturing. Let us see why it is important.

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Challenges in the Path to ‘Power for All’

Government of India’s commitment to provide ‘Power for All’ and its decision to support green energy transition, marked a new beginning for the country. With solar energy transition promising to save billions ($) in fossil fuel imports, create jobs, initiate technological growth, facilitate industrial growth, and offer the opportunity to claim the export market, developing countries like India need to quickly seize the opportunity and become a solar powered country. And factoring in India’s recent initiatives towards solar growth, we can fairly assume that the country has chosen the right path to social, economic, and industrial revolution, which will illuminate the future of more than 200 million people (who currently live without electricity). Like any industry, there are multiple challenges in countrywide solarisation in India. However, recent taxes and duties levied on growing solar industry must be considered as the biggest challenge in path to India’s most important and impactful transition.

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The Chinese Solar Story: Some Learnings

India’s decision to adopt green energy through solar has opened up new opportunities for energy and economic growth through industrial development. And although, India’s initiatives to support and ramp up solar should be commended, the country is nowhere close to giants like China who have become the global supplier and have dwarfed other countries in solar installations (~145 GW). China announced a new energy policy in June 2018, which terminated approvals for new, subsidized utility-scale PV power stations, halting in-country solar growth within China. The country’s new announcement of revising renewable energy consumption targets to 35% by 2030 puts China back in its mantle of industry leader.

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The Re-Alignment

China’s previous decision to shrink its renewable energy target would have dealt a terrible blow to aspiring solar manufacturing industries in developing countries like- India with influx of cheaper solar modules. However, this new policy revision re-iterates how China continues to re-align its industries and priorities to support solar growth. The new policy shows China proposing higher green power consumption targets while mandating penal action against those who fail to meet goals to help fund government subsidies to producers. China became the leading force in global solar industry (in 2017, China accounted for 54% of global PV installations) by focusing on expanding manufacturing capacities and offered subsidies to projects development. Growing subsidy cost ($15.6 billion in 2016) which are suspected to reach $39 billion by 2020 pushed China to stop its renewable energy expansion.

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However, what is exceptional is how rapidly China has solved its internal issues and are back with solar energy growth. The reason behind China’s prompt action is its obvious understanding of the solar opportunity and the promise it holds. By focusing on solar manufacturing capacity growth, China has been able to support industrial growth. Leading to job creation and economic progress. As testimony, we can take example of India and China’s influence over its solar market. ~80% of Indian solar market has been claimed by China and in In FY 17-18 the India’s solar module import expenditure stood at $3.8 billion (mostly from China). This proves that China’s decision on gaining manufacturing prowess has served the country well. And to protect what the country had built, to create and maintain demand of its domestically manufactured solar products, and to keep encouraging solar entrepreneurs; in a nutshell we can say that China sprung to action to press on its advantage in the growing global solar industry.

India Must Re-Prioritize Solar

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India has taken initiatives and created policy environment to support solar manufacturing. However, recent policy developments such as imposing 25% safeguard duties that target SEZ based solar manufacturers, differential GST rates (5% for modules and 12-18% for other inputs), and continued solar importing (FY 17-18 spent $3.8 bn) have come forward as a great challenge for domestic solar manufacturing in India.

Like China and other dominating solar countries, India must understand that strengthening domestic manufacturing eco-system is not just the best but the only choice for India to gain energy security and self reliance. And as statistics show, India can become the third largest economy in the world by focusing on domestic manufacturing, which promises to improve social, industrial, and economic infrastructure. Domestic solar manufacturing can create jobs, reduce import expenses, build industrial infrastructure within a country. This is clearly in alignment of ‘Make in India’ initiative, which also need to be re-prioritized for India’s growth.

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India has an exceptional opportunity to become energy super power and facilitate industrial and economic growth through choosing solar. But, manufacturing has to be focused to see this transition into reality. India has the perfect example in front of it, and it is China. China’s growth and tenacity towards supporting solar growth should inspire India to go all in solar.