An article published on July 20 in The Financial Express argues that the time is now to undertake aggressive efforts to localize India’s supply chain for PV products. Like other countries affected by the COVID-19 outbreak, India has taken drastic measures such as regional lockdowns and work-from-home mandate to contain the spread of the deadly disease. These actions naturally have the effect of disrupting commercial activities and transportation of goods at both the domestic and international level. Consequently, there have been delays in the development schedules of large-scale solar projects across the country. On the other hand, the pandemic also provides a chance for the Indian solar industry to significantly reduce its dependence on imports and localize production for the key components used in PV systems.
In its current plan for the development of renewable energies, India is targeting 100GW of PV generation capacity by 2022. The reasons behind the country’s pursuit of energy transition include lowering the electricity bill for the majority of its people, cutting down the importation of fossil fuels, and achieving low to no carbon emissions from the generation of grid electricity. While the Indian government is very proactive, the growth of the country’s PV generation capacity has not been particularly strong. The emergence of the COVID-19 pandemic earlier this year has caused further delays in the construction of many PV power plants around India. The Financial Express article reports that the pandemic has hampered the installation of around 28GW of PV systems in the country, and 5-6GW out of that amount is directly affected by shortages of laborers and PV modules.
Most of India’s demand for PV cells and modules is met by imports from China. According to a recent article in PV Magazine, nearly 80% of cells and modules imported to India in 2019 came from China. The same article further points out that the total value of India’s cell and module imports in 2019 reached US$2.6 billion, and China-made products accounted for US$1.69 billion out of that amount. The Indian government had the intention of fostering the growth of the domestic solar industry when setting its renewable energy targets. It is also preparing to raise the duty on solar imports in order to level the playing field for domestic manufacturers. Whether a higher tariff will benefit both the industry and market remains to be seen.
While the pandemic is causing disruptions in India’s PV supply chain, it is weakening the country’s dependence on cell and module imports as well. Currently, the Indian solar industry has 18 cell manufacturers with a total production capacity of around 3GW and over 175 module assemblers with a total production capacity of around 10GW. Vivek Sharma, author of The Financial Express article and senior director at the energy and natural resource unit of CRISIL Infrastructure Advisory, recommends that the Indian solar industry needs to form a complete supply chain rather than just focusing on module assembly. Although expanding the domestic production capacity for modules is important, the key components that have added value would still have to be imported from other countries like China.
Sharma estimates that if India wants to increase its PV generation capacity by 12-15GW every year, there will be an increase of around 4 trillion rupees (or 40,000 crore rupees) in its annual import bill unless certain manufacturing equipment can be sourced domestically. To expand production capacity for all sections of the domestic PV supply chain, Sharma points out that the Indian government needs to do the following four things: create additional demand, launch incentive programs, provide low-interest loans, and support R&D.
Raising the number and generation capacity of tenders for solar projects will improve the demand visibility and help domestic manufacturers achieve economies of scale. Policy initiatives that lower the costs and taxes related to the acquisition of land and construction of factories will also encourage investments in localization. Sharma also suggests the creation of solar industry zones, where the production capacity can grow to the GW scale for wafers, cells, and modules. Gaining a cost advantage through scaling up will make the Indian solar industry more competitive on the international market. Currently, imported PV products are still priced about 20% less on average than domestic counterparts in the Indian market.
The Financial Express article concludes that localization will be necessarily a gradual process that involves making considerable investments in the short term. However, substituting imports with domestic production for PV components can protect the domestic solar industry against externalities such as the recent pandemic. At the same time, there are additional benefits including the creation of demand for O&M, warranties, and other post-sale services. Achieving a higher degree of self-sufficiency will bring about partial sustainability for the Indian solar market and generate thousands of new jobs.
Note: A crore (a.k.a., karor or koti) denotes 10 million in the Indian numbering system, and rupee is the common name for the currency of India. Hence, 40,000 crore rupees is equivalent to 4 trillion rupees.
(News source: TechNews. Photo credit: Deb Nystrom via Flickr CC BY 2.0.)
