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IEEFA: No excuses, India must ramp up solar manufacturing to reduce reliance on imports

July 19, 2021
Vibhuti Garg

India has made huge strides in building renewable energy capacity and ranks fourth globally in terms of overall renewable energy capacity. As of May 2021, we have 95.6 gigawatts (GW) of installed renewable energy capacity, almost half of which (41GW) is solar energy. Raising its renewable energy ambitions further, India has created an ecosystem to support solar product manufacturing alongside storage to enable accelerated integration of renewable energy into the grid.

To boost domestic manufacturing, the Indian government initiated various policy measures such as the National Solar Mission in 2010 and the Modified Special Incentive Package Scheme (MSIPS) in 2012. To lend further assistance to the stressed sector, the government then introduced measures such as the Domestic Content Requirement (DCR) in 2014 and the Safeguard Duty (SGD) in 2018 to dampen the influx of cheap imports. 

In late 2019, Solar Energy Corporation of India (SECI) issued a landmark project development tender for 12GW of solar generation capacity and within that a tied contract for 3GW of domestic module manufacturing capacity, to provide a boost to domestic production by linking it with a big solar tender. 

In April 2021, the government approved the Production-Linked Incentive (PLI) scheme for the solar PV manufacturing sector, with Rs4500 crore (US$603 million) allocated by the Ministry of New and Renewable Energy (MNRE) for investment in high-efficiency solar PV modules. In a further move to make domestic solar manufacturing competitive, the Ministry of Finance has provided long-term policy certainty by issuing an order to impose 40% and 25% Basic Custom Duty (BCD) from 1 April, 2022 on the import of solar modules and solar cells, respectively.

Costs for setting up solar PV projects in India dropped by more than 80% between 2010 and 2020

Renewable energy is deflationary, with costs for setting up solar PV projects dropping by more than 80% in India between 2010 and 2020. The government has set huge targets for renewable energy capacity in the next decade, which now need to be matched by solar supply chain manufacturing capacity.

Boosting solar manufacturing in India

The government has provided clear incentives in the form of capital support, tax incentives, imposition of tariff barriers, etc. to boost domestic manufacturing of solar products. While these initiatives are working – the share of domestic modules installed in total in India increased from 15% to 35% in the last three years – the industry remains heavily reliant on imported modules from China and other countries, including Thailand, Malaysia, and Vietnam.

Prime Minister Modi aims to make India a self-reliant economy and has ratcheted up calls to boost local manufacturing and reduce India’s reliance on imports. With new fiscal and policy measures announced by the government, it’s now time for solar manufacturers to ramp up capacity and set up large GW-based manufacturing units in India, driving local investment and employment while improving self-reliance. Since 2015, India has on average imported solar cells and modules worth Rs17,600 crore (US$2.6 billion) annually. Moving into module and cell manufacturing with completely integrated facilities would put solar developers at an advantage against currency fluctuation and supply chain disruptions.

It’s now time for solar manufacturers to ramp up capacity and set up large GW-based manufacturing units

Mukesh Ambani, chairman of Reliance Industries, has just announced an Rs75,000 crore (US$10 billion) investment plan into clean energy in India, which includes plans to develop gigafactories to develop and manufacture solar modules, batteries, fuel cells, and more. If successful, this will help strengthen India’s input value chain and help protect the country from the vagaries of price volatility internationally. 

Last year, when the COVID-19 pandemic hit the global economy and countries restricted movement across borders, development of new renewable energy capacity came to a halt. While the situation improved towards the middle of the last year and imports resumed, India again saw some restrictions internally in material imports as we faced a devastating second wave in the months of April and May. Given India’s current heavy reliance on imported inputs, becoming self-reliant and boosting production across the value chain will play an important role in achieving our renewable energy target and driving sustainable economic growth. 

The expansion of domestic solar will create millions of jobs and incomes. It is already increasing the share value of renewable energy companies in India. Solar panel glass manufacturer Borosil Renewables has increased production significantly in the last two to three years and has seen enhanced investor interest and share appreciation. The company has big plans for expansion based on India becoming a manufacturing hub for leading-edge solar glass production. 

Through various initiatives and schemes, the Indian government has created a conducive environment for industry stakeholders to expand domestic manufacturing. Industry must now respond positively to these signals by setting up large-capacity solar manufacturing in India that not only meets domestic requirements but increases exports to other countries as well.

While China is currently the world leader in solar manufacturing, India has huge domestic potential that should be fully exploited, and in doing so, providing a leading example of transition for neighboring countries. Although there will be an initial plateauing of the solar deflation, these will again trend downwards in the medium term as economies of scale pick up and technology innovation accelerates.

India should also seize this opportunity to manufacture emerging technologies such as monocrystalline (mono-Si), bifacial and half-cut cells, micro-inverters, and tracking equipment, all of which promise further solar efficiency gains over the coming years.

There is robust demand and increased government support for manufacturing self-reliance

India has set an ambitious target to achieve 450GW of renewable energy capacity by 2030. Solar manufacturers should fast track the expansion of domestic production as well as backward integration plans. There is robust demand and increased government support for manufacturing self-reliance. An aggressive manufacturing scale-up would cater to domestic demand and open up opportunities for new technologies like green ammonia and hydrogen while opening new avenues of exports, especially after the COVID-19 supply chain shock that forced nations to start looking at alternatives to imports.

Vibhuti Garg is an energy economist and Lead India at IEEFA

This article first appeared in PV Magazine India

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Vibhuti Garg

Vibhuti Garg is an energy economist and IEEFA Lead India. Vibhuti’s focus is on promoting sustainable development through influencing policy intervention on energy pricing, adoption of new technologies, subsidy reforms, enhancing clean energy access, access to capital and private participation in various areas of the energy sector. 

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