In a bid to protect and encourage domestic manufacturing, the government recently announced the imposition of a safeguard duty on imported solar cells and modules, creating uncertainty and stress in the solar power market. While this may provide a level-playing field to domestic manufacturers, it will affect the developers negatively and result in an increase in tariffs, threatening to derail the progress made so far. Leading manufacturers share their perspective on the key developments in the past year and their impact on industry operations…
What have been the significant developments in the renewable energy sector in 2018? How have these impacted the manufacturing segment?
The announcement of the 3 GW integrated photovoltaic (PV) module manufacturing capacity tender linked with 10 GW of development rights by the Solar Energy Corporation of India (SECI) and the imposition of a safeguard duty by the central government were the two significant developments of 2018 in the solar manufacturing segment in India. In our view, the imposition of a safeguard duty was aimed at offering short-term protection to the existing module and cell assembly facilities rather than incentivising new investments in fully integrated manufacturing facilities, while the SECI manufacturing tender was aimed at bringing in fresh investments.
The numerous time extensions and changes in the SECI manufacturing tender highlight the distinct lack of interest from prospective participants for such capacity. We need to wait to evaluate if such a programme would eventually bring in fresh investments in manufacturing considering the fact that the SECI tender has nothing to offer in terms of incentives to make manufacturing competitive in India vis-à-vis other countries.
The industry is moving towards new solar technology adoption for faster energy transition. Initiatives like Make in India do highlight India’s intent to support domestic solar manufacturing. However, recent developments like the imposition of a 25 per cent safeguard duty on the import of “solar cells whether or not assembled in modules or panels” provides low clarity. There is also ambiguity on its applicability to manufacturing units set up in special economic zones where more than 60 per cent of the domestic solar equipment manufacturing units are situated. Some of the other major issues that hamper the growth of the industry are lack of clarity on the goods and service tax (GST) rate (5 per cent or 18 per cent) applicable to solar EPC contracts, inadequate focus on solar research and development (R&D) platforms, quality concerns and the lack of a market for domestically manufactured products. However, the International Solar Alliance is expected to present opportunities to access new untapped markets, creating demand for domestic manufacturing sector. Meanwhile, apart from utility-scale ground-mounted solar power plants and solar parks, rooftop and floating solar are gaining importance and becoming cost competitive.
The government must realign its policy initiatives to prioritise solar manufacturing and promote domestic products. Strict enforcement of the public procurement order should be ensured to mandate the procurement of domestically manufactured solar products by public sector units. Further, existing manufacturers who wish to integrate backwards, and add at least 50 per cent of their existing capacity should also be allowed to participate in the manufacturing-linked tender.
Many module makers have increased their manufacturing capacities after the government proposed to impose safeguard and anti-dumping duties on the import of solar cells from certain countries including China. Earlier, while the size of solar PV projects in India continued to grow over the years, local manufacturing was ill-equipped to supply for big projects in a short duration of one to two months owing to capacity constraints. However, in the current scenario, many manufacturers are scaling up capacities to more than 1 GW to meet the demands of large utility-scale projects. The levying of 25 per cent safeguard duties on the import of PV cells and modules and increase in forex have certainly driven some developers to consider local manufacturers for their projects. Module manufacturing capacities have certainly gone up. However, the same cannot be said for cell manufacturing, which requires huge capital investments, and other components, used in the manufacturing of modules, which require large volumes to be cost competitive.
The demand for power in the country is expected to increase to 550-600 GW by 2030-32, especially given the upcoming demand from electric vehicles (EVs) owing to favourable policies introduced by the government. The demand for renewable energy will also increase accordingly, and the load balancing act at the grid will need to be undertaken by energy storage solutions (ESS).
New-age energy storage technologies such as lithium-ion batteries (Li-ion) are more suitable for large megawatt-scale application as they provide benefits such as faster response, shorter charging time, higher number of charge/discharge cycles and greater efficiency. However, the high cost of Li-ion batteries remains a challenge. Consumers want new and improved technologies at the same cost as the older technologies and the only way to achieve that is to scale the manufacturing of energy storage systems in India.
What are the current outstanding issues and concerns in the manufacturing segment?
Currently, the global aggregate solar PV manufacturing capacity stands at 147 GW per annum, whereas the global aggregate demand projection for 2018 stands at 85 GW per annum, 15 per cent lower than 98 GW in 2017. Hence, there is overcapacity across the value chain, ranging from silicon to wafers, ingots, cells and modules. This has led to a stalled inventory and a consequent decline in price realisation. As a result, many manufacturers are showing cash losses, shutting down existing capacities, and eventually heading towards consolidation. Further, countries that are driving demand (like the US and India) are imposing tariff barriers against imported equipment. These distortions in the demand and supply dynamics are further increasing the uncertainty of investments in the manufacturing sector.
India’s renewable energy capacity is heavily dependent on imports due to which the domestic manufacturing industry is bleeding. The obvious reasons behind this are the lack of policies to promote domestic manufacturing, stiff competition from foreign players and dumping of solar cells and modules.
Large developers and investors are most concerned about the efficiency and quality of PV modules to reliably produce power over their 25-year expected lifetime or longer (in demanding environments such as India) for reliable investment returns.
This may have to do with the past performance of domestic modules and the lack of focus on product testing and R&D in the country. The government can give policy support to local players but they must put in efforts to change the industry’s perception by deploying more resources for product testing, quality improvement and R&D. While some of the big suppliers have started moving in this direction and made investments to set up good labs, the small and mid-sized players are not there yet.
Another issue is the long-term outlook for local manufacturers. The safeguard duties are applicable only till 2020. A better demand outlook will enable more investments in the manufacturing equipment especially for wafers and cells, which are extremely critical to control the overall product cost without any compromise on the quality.
The biggest challenge in the energy storage space, which directly affects the manufacturing segment, is the lack of customer awareness about the various benefits of ESS. Currently, the raw material for manufacturing these solutions is imported and the consequent taxes and duties applicable to the cost make them expensive. There is also a lack of know-how and technological skill in this industry. Moreover, a regulatory framework, which is essential for an upcoming industry to grow in a streamlined way, is absent. There are no guidelines available to differentiate between the different qualities of batteries. The integrity of the grid is also a challenge with ambiguity regarding the level at which energy storage can be installed, that is at the farm level, or at the pooling point level.
Meanwhile, the cost of ESS is prohibitive. Currently, the cell price cost stands at $180. Once converted into a pack or an ESS, the price will increase. Also, this cost level is for manufacturers who have large-scale manufacturing processes. So the price has a volume attached to it, which is something people conveniently forget.
Do you have plans to expand your manufacturing capacity in India? What is the rationale behind your decision?
First Solar has a differentiated technology and manufacturing process to produce its CdTe (cadmium-tellurium) thin film PV modules. The company has embarked on a significant manufacturing capacity expansion at its existing locations in the US and Malaysia besides investing in a greenfield manufacturing factory in Vietnam. The process of capacity expansion would conclude by 2020, and any new manufacturing capacity expansions would be evaluated thereafter. First Solar has always considered India to be a potential manufacturing destination and would continue to do so as we evaluate manufacturing options in the medium to longer term.
We have ambitious plans to multiply our existing capacities and also undertake the backward integration of our existing facilities provided there is a clear visibility for product offtake and suitable policies are implemented by the government to support manufacturing in the solar sector. Our continued pursuit towards ramping up manufacturing capacities in India is closely tied to our belief that only through manufacturing the country can transform its industrial, economic, social and employment paradigms.
DuPont has a steadfast commitment to meet the world’s growing demand for dependable renewable energy. Advanced materials from DuPont include DuPont™ Tedlar® films for PV backsheets, DuPont Solamet® metallisation pastes for solar cells and we recently expanded our PV portfolio to include applicable Dow Corning brand PV silicones. DuPont has more than doubled its capacity over the past few years to produce DuPont™ Tedlar® film in order to keep pace with the continued growth in solar and other key industrial markets that rely on Tedlar® film. We have strengthened our marketing, sales and technical resources in Asia Pacific and other key customer areas.
Our primary focus at the moment is to be an enabler in the adoption of Li-ion technology. Delta can provide energy storage solutions for large-scale renewable energy integration in wind or solar farms. We are also trying to create a better ecosystem for greater adoption of energy storage technology. At present, we are focusing on the manufacturing of energy management systems, which control the various functions of power storage. We are also working on integrating different types of technologies into the existing systems. We have plans for manufacturing under consideration. There are certain policies and programmes that are now facilitating the energy storage market, such as the National Energy Storage Mission (NESM). Since the adoption will remain slow for at least the next few years, we are looking at the long-term implementation of government plans to develop the required capabilities.
What is the demand outlook for the Indian renewable energy manufacturing sector for the short and medium term?
Given the imbalance in global demand and supply, coupled with the fact that there is no solar PV manufacturing policy that offers meaningful incentives to make Indian manufacturing more competitive vis-à-vis existing options from China and other Southeast Asian countries, the short-term outlook for fresh investments looks bleak. We have always advocated a manufacturing policy that focuses on three key areas – a differentiated technology, which offers a lower cost structure instead of creating the same that exists in China; a set of incentives that can help lower costs and make Indian manufacturing competitive with the global supply chain; and a stable policy environment for long-term demand generation of solar PV. As of date, there are significant gaps to close on the incentives part (with respect to other countries) as well as on providing a stable policy environment, given the cancellation of tariff auctions, ambiguity on GST and duties, and other state level regulatory issues.
Demand for renewable energy manufacturing, especially solar manufacturing, in India is low due to stiff competition and falling prices of solar cells and modules in China. The demand will continue to remain low unless the government takes bold measures to create a market for indigenously manufactured products. However, given the increasing quality issues with imported modules, India will soon realise the importance of powering its own manufacturing base rather than depending on foreign suppliers.
Indian manufacturers currently hold 10-15 per cent share in the overall demand for PV modules. This share will be lower if we only consider utility-scale projects. With the introduction of safeguard duties and expansion of manufacturing capacity, we expect higher demand for locally made cells and modules in the short term. The long-term demand, as mentioned earlier, depends on the initiatives taken by the government, the trend of module prices in China, and investments made by local manufacturers for improving quality and reliability, R&D, wafer and cell manufacturing in order to compete with Chinese players both from cost and quality standpoints.
There is a large potential market for ESS in India given the growing role of renewable energy in our grid. The introduction of EVs is also going to play a big role in driving up power demand. Therefore, the deployment of energy storage is inevitable, but it should be done at the correct prices. If government policies and NESM are implemented effectively, and there is enough support and encouragement from the stakeholders, India could become one of the largest countries in terms of ESS demand and manufacturing. In this regard, the turning point will be in 2022.
Over the next two years, we will see pilot projects emerging to help the industry become more aware. Thereafter, more volumes of ESS will start coming up and the market will begin to grow.