India’s ambitions to develop its own solar manufacturing base, under the broader doctrine of ‘Aatma Nirbar Bharat’ – ‘Self-Reliant India’, have seen some progress this month with new factories announced by Vikram Solar and ReNew Power. This is due to import duties on Chinese modules and some other government actions like the Modified Special Incentive Package Scheme (M-SIPS), which subsidizes capital investment in factories. SECI’s attempts to lure developers with manufacturing-linked project tenders, and this has met with belated success.
According to anonymous government sources speaking earlier in the month, the government may also be considering tenders which would grant viability gap funding to solar wafer and ingot manufacturing, pushing the entire process upstream.
India’s solar imports have been as high as 85% across all equipment types in recent years, mostly from China, Vietnam and Malaysia. A safeguarding import duty of 25% brought in, in July 2018 has declined as planned to 15%, and was due to be abolished at the end of this month. It will instead be maintained at 14.9% for six months, then 14.5%, if the recommendation made by the Director-General of Trade Remedies last week is followed. In the short term, the government is limited by statute to a value below 15%.
In the longer term, government statements suggest the Safeguarding Duty will be replaced by or rolled into a duty of 20-25% in the coming year, followed by a rise to as much as 40% in the long term. A duty lower than 30% to 40% would still see Indian manufacturing outcompeted by China, whose manufacturers are currently upgrading their production lines to more powerful and cost-efficient 166mm, 182mm and 210mm wafer sizes. A recent CEEW Centre for Energy Finance study found that Indian modules are 33% more expensive than Chinese imports.
Naturally, Indian manufacturers have advocated for such custom duties, while developers have suffered disruption and have struggled to obtain recompense for the additional cost. Between FY 2018 and 2019, imports from China fell from $3.4 billion, the all-time high, to $1.7 billion, and were $1.2 billion for the first three quarters of FY 2020. China makes up a little under 80% of total solar imports.
Aside from the government’s agenda for Indian self-reliance, recent months also saw border clashes with China, and interruptions to the supply of Chinese imports when their factories were closed by the pandemic. The government’s own rooftop solar installations will only use Indian-made modules, as declared a few weeks ago by Prime Minister Narendra Modi at the launch of the 750 MW Rewa Solar Project.
Last week, Vikram Solar signed a MoU with the state government of Tamil Nadu to establish a 3 GW manufacturing facility, which would cost around $727 million. Unusually, this facility will cover wafers, cells, and modules – India’s manufacturing normally covers only cells and modules, and is lacking in the upstream stages of polysilicon, ingots, and wafers. The plant will be developed over five years in segments, some of which may begin operation before every segment is online.
Waaree Energies, which like Vikram stands at 2 GW manufacturing capability right now, told the Financial Express that it, too could add 3GW to 4 GW of new capacity, under the right policies. A fortnight ago Hitesh Doshi, chairman and managing director of Waaree Energies commented, “If a clear policy comes in the next 30 days, we will increase our capacity to 4 GW in three quarters. However, we need alignment of manufacturing costs such as finance cost, power cost, land and other support to compete with China.”. India’s interest lending rate is 11%, twice the value seen in China.
Earlier in the month, ReNew Power announced its own plan to set up a 2 GW plant manufacturing cells and modules, at a cost of between $200 million to $267 million, and is in discussions with several states.
On the 23rd of this month, Indian developer Azure Power announced it had been awarded a further 2 GW project development under a greenshoe option, bringing its total to 4 GW from SECI’s manufacturing-linked auction held in late 2019. The project has a 25-year PPA and a $39 per MWh tariff, and is interstate-transmission system (ISTS)-connected. It can be located anywhere Azure chooses in India. This power plant award came with a requirement of 500 MW cell and module manufacturing capacity, which Azure Power will meet by partnering with a domestic manufacturer.
In a bid to expand India’s domestic manufacturing industry several years ago, India sought expressions of interest for 20 GW of manufacturing capacity, but this failed for lack of interest. SECI’s manufacturing-linked solar tender was then launched in May 2018, seeking 10 GW project development and 5 GW manufacturing capacity. During a period of delays and criticism, this was repeatedly reduced to a low point of 3 GW and 1.5 GW, but was then brought back up to 7 GW and 2 GW with a raised tariff.
In April 2019, Vikram Solar – a manufacturer and EPC provider – commented that the failure of the tenders up to that point was mainly due to the fact that manufacturing was outside the developer’s core specialty, and that manufacturing requires high equity and low lending, whereas project development is low equity and high lending. The company also argued that the government should promote existing manufacturers, rather than seek to create a developer-manufacturer industry.
The ceiling tariff was raised to $39.1 per MWh, unusually high by Indian standards, and almost 20% higher than the tariff for 1.2 GW of ISTS-connected solar awarded in February 2020 by SECI. This was enough to offset the manufacturing requirement downside, and by November 2019, three developers had come forward with big offers.
Adani bid for 4 GW solar power and 1 GW manufacturing, while Azure Power and Navyug each made bids of 2 GW solar power and 500 MW manufacturing. Adani’s portion was later doubled on both counts, to 8 GW and 2 GW. These manufacturing offers were specifically for cell and module manufacturing.
In Adani’s case, this will take the company’s yearly output from 1.3 GW to 3.3 GW. At the time, Chairman Gautam Adani, founder and owner of the group, claimed that India could eliminate Chinese imports entirely in four to five years.
In August 2019, The Energy and Resources Institute (TERI) reported that India had 11 GW of solar module production, and 3 GW for solar cells, and imported 85% of overall solar equipment. The country installed 8.5 GW of new solar capacity that year, but that doesn’t necessarily mean it has the module production it needs – much of the 11 GW figure is obsolete or uncompetitive with East Asian imports.
In its Solar PV Manufacturing in India: Silicon Ingot & Wafer PV Cell-PV Module policy paper, TERI advocated a phased program to bring manufacturing up to 15 GW in two or three years to 2024. This would come in three stages: solar cells and modules, ingot/wafer and balance of system, and plant and machinery equipment production.
It saw this beginning with investors funding cell and module factories of 1 GW minimum capacity, perhaps in hubs of 4 GW to 5 GW each along with ancillary industries. State governments would assist with the acquisition of land and infrastructure. This would be followed by silicon ingot and wafer production, leaving only balance of systems and other equipment to be developed for an independent, national manufacturing industry. TERI Distinguished Fellow Ajay Shankar added that the government should ensure sales for 4 years, and employ special economic zones.