The Indian solar power industry is awaiting the results of an anti-dumping investigation into solar cell and module imports from China, Taiwan and Malaysia. The outcome could have far-reaching implications for the solar manufacturing industry. Renewable Watch invited industry experts to share their views on imposing anti-dumping duties on foreign manufacturers, the rationale for such duties and their likely impact, if imposed.
What is your opinion on imposing anti-dumping duties on foreign manufacturers? Why is this needed and to what extent?
Imposing anti-dumping duties is a delicate issue requiring a fine balance between the interests of the two stakeholders of the solar industry, namely, the solar power developers and the solar manufacturers, while keeping in mind the aim behind the solar mission of the country.
One of the main objectives of the National Solar Mission (launched in 2010) is to focus on research and development (R&D), and promote domestic production of critical raw materials, components and products for the solar sector. This is critical for the success of the solar mission. Perhaps this aim has been lost to the other aim of the mission, which is to achieve grid parity for solar power in India. Import of Chinese modules contributed majorly to the reduction in the solar power tariff, which helped achieve grid parity (much before the originally estimated time).
Usually, anti-dumping duties are requested by domestic manufacturers so as to ensure a level playing field by protecting them from dumping by foreign manufacturers, which is considered as an unfair trade practice. This request is assessed through proper investigation by the relevant regulatory authority in the country (to be, inter alia, as per the rules prescribed under the World Trade Organization [WTO] agreement on anti-dumping).
Based on the recent request of the domestic manufacturers of solar cells and modules, the Directorate General of Anti-Dumping (DGAD), India has initiated anti-dumping investigation concerning the import of solar cells and modules originating or imported from the People’s Republic of China, the Chinese Taipei and Malaysia.
At this juncture of the solar growth in the country, and specifically if the aggressive targets set for the industry are to be achieved, then imposing these anti-dumping duties on solar modules may not be good for the industry. The solar industry currently is grappling with the GST impact and increase in the price of Chinese modules.
In our opinion dumping is an unfair trade practice and hence, if any manufacturer or exporter does indulge in dumping, then the domestic industry has a legitimate right to seek compensation. The larger question in the context of the Indian solar photovoltaics (PV) industry is their ability to offer a credible alternative to imported solar PV modules. Majority of the domestic module manufacturers import cells, and hence, a domestically manufactured solar module typically has 70 per cent import component. Further, the majority of the imports are from the same countries where dumping is being alleged. The stakeholders need to make an objective assessment of the capacity and capability of the domestic industry to support the market in a scenario where dumping duties have been imposed on the imports.
Are domestic manufacturers justified in asking for these duties? What are the other ways to improve the domestic manufacturing scenario?
Legally speaking, the justification of the domestic manufacturers’ request is subject to the investigations of the DGAD. Though, I would say considering the financial health and production levels of the domestic manufacturers, their position is understandable. However, whether the imposition of anti-dumping duties would directly improve the domestic solar manufacturing in the country is a much more complicated discussion and does not have a binary answer, since a number of factors need to be considered to ascertain what would improve the solar domestic manufacturing scenario.
For improving the domestic manufacturing scenario, at the outset, domestic manufacturers need to brainstorm together and put a plan required for revising the industry, with the assistance of the government. They should work with the government to finalise plans including grant of incentives and reliefs to promote domestic manufacturing. Mandatory domestic content requirement originally envisaged by the solar mission was a good measure. Unfortunately, it did not work and is now being stopped, based on the WTO ruling.
Another option to consider may be to attract foreign investment in this sector by pushing manufacturing as part of the “Make in India” initiative. This would help domestic manufacturers get the technology to manufacture at lower prices. And, foreign investment would be useful to meet current requirements for the continued growth of the renewable energy sector, namely, energy storage and smart grids/grid management, which is necessary for grid stability.
As already mentioned, the domestic supply chain is still heavily dependent on imports. In this scenario, imposing dumping duties without evaluating the alternative supply chain could adversely impact the consumers as the equipment costs would go up. Our view always has been that measures like anti-dumping are temporary interventions and do not create incremental supply chain investments in the country. There needs to be a long-term policy on promoting domestic solar PV manufacturing in the country. Also, how can a “Made in India” module compete against the global supply chain in an unsubsidised and open market? The policy needs to address how steady-state demand would be ensured for the capacity being created in India, and how the manufacturing investments can make the necessary returns in order to create a sustainable manufacturing/R&D operation. The cost of raising capital as well as high income taxes have been deterrents to attracting investments in a completely integrated solar manufacturing set-up in India and unless large integrated facilities (semiconductor-finished module) with a scale of 1.5-2 GW per plant are set up, the existing incremental module assembly operations with high import content will always remain sub-scale and hostage to vagaries in the imported supply chain.
What is your outlook for the solar segment post the imposition of anti-dumping duty? With 20,000 MW declared to be auctioned by the MNRE by the year-end, how will anti-dumping (if ruled in favour of domestic manufacturers), impact solar tariffs?
One of the direct impacts of any anti-dumping duties imposed on the import of solar modules would be an increase in project costs. And thus, the viability of projects already bid out at tariffs agreed for a period of 25 years will merit consideration. For this, PPAs for each of these solar projects impacted by such duties need to be examined to ascertain if imposition of these anti-dumping duties on foreign manufacturers would qualify to be a change in law. And, if yes, then petitions to the Central Electricity Regulatory Commission or the appropriate state regulatory commission will need to be made with a request to grant the relief for such a change in law. All this would indeed be a long-drawn process.
With regard to future bidding, one would imagine that the developers would become sensitive to this cost and would want to factor the additional cost into their financial models before bidding for solar projects. As the price of the modules is about 60-70 per cent of a solar project cost, it is likely that going forward, responsible bidders would factor this additional cost and consequently, the tariff bid may see an upward trend, all other costs and parameters remaining the same.
This question can be addressed only once the outcome of the investigation is known. Intuitively, any increase in duties would increase the cost of the project and therefore, the tariffs could rise. The discoms, being the primary consumers, would then need to evaluate how this potential increase may impact their overall plans to acquire solar energy.
What is the international practice in terms of imposing such duties?
We understand that historically the European Union (EU) as well as the US have imposed anti-dumping duty on the import of solar cells and modules originating or exported from China.
There is a precedent of the domestic manufacturing industry being compensated for dumping by exporters. There were dumping tariffs imposed in the EU and the US in the past. However, the jury is still out if imposing anti-dumping duties resulted in creating a larger domestic industry in those countries.