India’s rise to 3rd Largest Solar Market in 2017: What it entails for the Exchequer?

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Considering the fact that India is one of three countries that mutually contribute to more than 70 per cent of the global CO2 emissions, the step towards green energy transition was an imperative, and decisive action indeed. Besides saving the climate, India stands to save enormously from fossil fuel expenditure with the success of green energy revolution. By championing solar, India not just initiated an industrial reform, but positioned itself in the global energy market, standing to generate profit as the world phases out fossil fuel.

So far, the green initiatives powered by Government support and proactive involvement of domestic manufacturers have helped India scale more than 10 GW solar capacity in 2017 (from 5 GW in 2015). Moreover, with more than 14 gigawatts of projects under development and approximately 6 GW capacity of soon-to-be-auctioned projects, India is expected to add nearly 20 GW of solar power over the next 15 months. Such incredible growth will certainly lead India to overtake Japan as the World’s third largest solar market in 2017. 

The Question

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With promise of growth, comes the question of sustainability and revenue generation. Sure, India will acclaim the esteemed position of one of the top three solar markets in the world, but will it support the industrial reform through generating revenue as the Hon’ble Prime Minister Shri Narendra Modi had envisioned? It is easy to understand that industrial reform, which can power socio-economic development in India, requires large financial support. And green energy shift could provide that support only if the domestic solar manufacturing industry is allowed to nurture.

For clarity, we may consider China, which has beefed up its domestic manufacturing to not just support its country-wide solar installations, but also to claim a huge portion of the global market. Countries like USA have also followed the same strategy to centralize solar manufacturing within their borderlines. As a result, USA and China are to be credited for the global solar power growth leap at a whopping 50 per cent (from last year). It is clear that their investment in domestic manufacturing has kicked back hefty profits to their own countries, which has led to innovation, upgradation, development and socio-economic reform. Similarly, focus on domestic manufacturing industry can save India a mammoth USD 42 bn. in equipment imports by 2030.

However, the present scenario in India paints a different picture altogether. 

The Situation At Hand

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The Government of India is taking measures to initiate industrial development through its ‘Make in India’ initiative and other policies that mirror India’s idea of nation-wide industrial empowerment and reform. However, until now, the country is spending billions of dollars (USD 821 million in 2014-15 and USD 1.3 billion in 2015-16) on solar module imports. Surprisingly, India is spending more in importing solar modules (USD 980 million) than gaining from exporting them (USD 50 million, Sept 2016). Obviously, continuing to import solar modules will help in reaching the 100 GW target by 2022, but it will also betray the dream of solar reliance and the Make in India ideology.

Since imported solar products hold more than 70% of share in the Indian solar market, it is easy to understand that success of our solar reliant future would be dependent on trade choices of our competitors. Foreign solar entities (mainly China) can produce and sell solar modules at a low price range (@ INR 5-6 cheaper per panel than domestic products), because of volume scale, cheap energy and access to low-cost capital. In addition, as India is one of the few large solar markets, that does not levy import duties on foreign solar panels, foreign solar players see a great advantage in India to practically dump their products without raising any eyebrows. Lack of policy/regulation for quality control on such dumping practices makes it easier for the foreign manufacturers to sell their sub-standard material in the Indian market, threatening the sustainability of the projects largely. This dumping process is a profitable business strategy based on the demand and supply dynamics, which is not covered by India’s domestic manufacturing capability. The profitability of the industry and in turn, that of the nation, gets affected as the cash outflow is in favour of the external companies, while the industry is not able to give back to its national exchequer.

Continuing on this path may help India reach its capacity targets. But it will also centralize the solar industry in foreign countries, further strengthening their capability to control the industry, and placing the Indian dream of becoming a global solar power on unstable grounds. Centralizing solar industry to foreign countries will also keep India at length of new technological innovations (as we will be spending on importing modules and not R&D). All of these developments indicate damaging of India’s chances at garnering profit from solar.

The Way Forward

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Our industrial development is still at a stage of infancy while, countries like China, US, Japan, Canada are backed by decades-old growth that has fashioned deep roots to penetrate the solar industry. However, to generate revenue through our solar industry, India needs to compete with these solar dominant players and claim a larger portion of the global solar market. That will only happen when Government decides to strengthen domestic manufacturing and create demand (domestic and international) for domestically manufactured materials, instead of depending on imported modules. With more focus on domestic manufacturing, and growing technological and quality enhancement, we would be able to control/reduce the manufacturing cost of the modules, creating cost effective and high-quality products, which would help the country establish itself prominently in the global solar map.

References:

  1. Solar Manufacturing in India; A KMPG Report
  2. In the First Half of FY 2016-17 Solar Imports Grew by 47 Percent YoY and Exports by 12 Percent
  3. CHINA’S EVOLVING SOLAR INDUSTRY AND ITS IMPLICATIONS FOR COMPETITIVE SOLAR POWER IN THE UNITED STATES AND THE WORLD
  4. India’s solar capacity grows over 3 folds to 10,000 Megawatt in three years
  5. USD 277.3 billion: India’s 2014 fossil fuel subsidy bill
  6. India Will Become World’s 3rd Largest Solar Market This Year
  7. India: World’s 3rd largest Solar market
  8. India to Overtake Japan as the World’s Third Largest Solar Market in 2017, Expects EnergyTrend
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