A key takeaway for the solar power industry in the aftermath of the Covid-19 crisis is that manufacturing will have to be decentralised as a major strategy to mitigate supply chain disruption risks associated with concentrated and localised operations. Take, for instance, the case of solar cells. Currently, India has 8 GW of solar module capacity spread across 60-80 manufacturers, but solar cell capacity is less than 1 GW. Those that produce solar cells are using the capacity for making their own modules to meet the domestic content requirement (DCR) of their government projects. For module manufacturers dependent on sourcing solar cells from outside India, the overall cost and time of manufacturing modules has gone up significantly. The transit time to get their supplies has gone up as they have now shifted from using the air route to the sea route. Logistics cost has also gone up due to scarcity of labour and blocking of capital for longer days. Moreover, the rupee has depreciated significantly against the dollar since March 2020, making imports even more expensive.
In this scenario, all module manufacturers would naturally be keen to kick-start their own solar cell manufacturing. However, there are two big challenges in doing so – one, setting up a solar cell manufacturing facility is very capital intensive; and two, it takes around two years to set up such a facility. Another potential challenge pertains to manufacturers’ fear of whether they will be able to compete on prices with cheaper imports from China and Taiwan, after putting so much investment into setting up the facilities. Realising the urgency of the situation, the government has started taking initiatives to achieve its targets set earlier under the “Make in India” programme, wherein it has been trying to promote local manufacturing. In the solar sector, the largest auction, concluded in early 2020, has been with Adani and Azure winning the bid to develop 2,000 MW of projects with 500 MW of manufacturing capacity each. The winning tariff quoted by both the companies was Rs 2.92 per kWh. Adani, under the greenshoe option, offered an additional capacity of 1,500 MW solar cell and module manufacturing and 6 GW generation.
In a recent statement, the former-secretary, Ministry of New and Renewable Energy (MNRE), Anand Kumar, noted that the ministry not only has plans to develop solar components like cells, modules, ingots and wafers but also to venture into manufacturing ancillary equipment like backsheets, inverters, transformers, etc. the MNRE has written to various state governments and port authorities to identify land parcels of 50-500 acres for setting up such parks. Reportedly, the Tuticorin Port Trust and the state governments of Madhya Pradesh and Odisha have already expressed interest in setting up renewable energy equipment manufacturing parks. The MNRE has also set up the Renewable Energy Industry Facilitation and Promotion Board to streamline investment in the sector. The plan is to enable these facilities to manufacture equipment like silicon ingots and wafers, solar cells and modules, wind power equipment and ancillary items like backsheet, glass, steel frames, inverters and batteries. In order to draw a balance between developers and manufacturers, the MNRE intends to use the basic customs duty (BCD) as a key tool instead of the safeguard duty, which, it stated, was a temporary measure to safeguard the solar industry. According to the MNRE, BCD will apply to all equipment in the renewable sector and not just to solar cells and modules. Meanwhile, in early May 2020, Bharat Heavy Electricals Limited (BHEL) issued an expression of interest inviting global companies to partner and leverage its facilities and capabilities for setting up a manufacturing base in the country. These include the manufacture of various goods, including heavy electrical equipment, process project equipment and solar value chain (silicon to module).
The way forward
Domestic manufacturers, including BHEL, Tata Solar, Moser Baer, Indosolar and Lanco, were the pioneers of the solar manufacturing industry till 2011. However, over the years, in the face of stiff competition from China, some of them could not sustain, Thus, the government needs to have a holistic approach while drafting policies aimed at promoting domestic manufacturing. For DCR programmes to be successful, equipment manufacturing not only needs to be incentivised but should also be ramped up to such a scale that would help the industry compete with global products. For this, there needs to be steady demand creation by the government. Emphasis should also be laid on the quality that is driven by technology. The bottom line is that investments in manufacturing will flow only if the government policies can instil the necessary confidence among investors.
By Dolly Khattar