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10 February 2022

Scatec delays Indian project – first casualty of solar import duties

Scatec, the Norwegian independent power producer, has put its 900 MW solar power plant in the Indian state of Rajasthan into abeyance, citing difficulties sourcing modules for the project.

The company blames the soon-approaching April 2022 deadline after which India will implement steep customs duties of 40% for modules and 25% for cells. The project was awarded back in 2018 with a SECI PPA, and a partnership with ACME was announced in 2021 to build it – construction should have started last year.

India’s government is heavily promoting development of renewables, with aggressive targets being set, auctions held, megacomplexes proposed left right and centre, and great tracts of territory made available by various agencies and federal states. After several years installing 8.5 GW a year with a crash in 2020 from lockdowns, a record was set in 2021 of 11.8 GW, and targets would see the rate continue beyond that.

But at the same time India is pursuing a protectionist strategy of import tariffs and domestic manufacturing incentives. There is an obvious contradiction between these two objectives, as keeping out Chinese modules, currently 80% of the Indian market, makes it harder to build projects.

India did abolish its 14.5% safeguard duty temporarily ahead of the April 2022 imposition of the new far steeper and effectively prohibitive import duty, but the supply chain crisis limited the extent to which modules could be affordably bought during this grace period. India’s utility-scale segment is among the lowest-cost in the world, with the result that module costs are commonly as high as 40% of total investment cost – sometimes even 50% – and that was before the cost increases of 2021.

There are two questions facing developers of solar plants in India – how long will the domestic manufacturing industry take to get up to speed, and how inconvenienced will they be in the meantime?

The likely answers are that major manufacturing capacity will start coming online in 2023 and beyond. But theoretical demand in India could easily double several times over by 2030, reaching say 60 GW a year if unimpeded by transmission and module supply, so manufacturing will catch up in the latter part of the decade, if ever. As for easing the travails of developers in the meantime, India showed willingness with its temporary suspension of the existing import duty until April 2022, but that only served to counterbalance rising module costs. “Aatma Nirbar” or self-reliance is a core concept in Narendra Modi’s policy agenda, and with all the government money being put into manufacturing, they don’t want to undermine it by allowing Chinese modules in – so India may be heading into several weak years of new deployments.

As Scatec CEO Raymond Carlsen has observed, Indian solar manufacturing is insufficient at present, and Carlsen says he is unsure how fast things are moving for new production capacity to be brought online. He’s also observed in an investor conference call that Indian module prices are looking higher than Chinese, though he expects them to reach parity in the future.

India did have near-complete self-reliance of solar module and even cell manufacturing a few years ago, but it was all polycrystalline M6-size – in 2022, this is obsolete, mainly due to efficiency ratings.

Recent Indian policy includes subsidies for every part of the supply chain, even polysilicon, but since the tariffs are only on modules and cells, imported polysilicon appears a likely prospect for the 2020s. Polysilicon is the most capital-intensive link and the most dependent on low (i.e. peripheral-region Chinese) electricity prices. Becoming self-sufficient in modules should not be hard – it is only something like 10% of total capital costs in the supply chain and many countries have that as the easy option for local content.

Cells however are the most technological element, with the complex electronics, and unfortunately it looks like India is going to end up building today’s technology, Mono PERC, instead of tomorrow’s – things like heterojunction and TOPCON. Mono PERC is still an upgrade but you have to wonder if in five or 10 years they will decide their capacity is obsolete and they have to do this all over again. That’s not the worst thing that can happen in a rapidly growing industry – after all China’s solar players have had to constantly reinvest into new production lines to stay competitive – but it is ironic and maybe a missed opportunity.

For an established Chinese company it only takes a year to build new module or cell capacity, but the Indian companies are working from a smaller base and adopting new technology. It will take several years for them, for a process that only started in earnest in 2021. The typical Indian manufacturer is sub 1 GW of new- non-obsolete production capacity and promising increases to multi-GW scale in the next few years: some are originally developers enticed by manufacturing-linked project tenders. The bright spot is definitely First Solar, which has announced a 3.3 GW factory in India and is bound to announce more unless protectionism is dropped entirely.

Then there are the megacorporations like Reliance industries promising tens of billions of dollars of investments in a 2030 timeframe. But India is one of those countries whose targets are not entirely trustworthy, where questions about timescale linger after each grand announcement.