AD is not an ideal solution for promoting domestic manufacturers, says Dr. Uma Rajarathnam Head, Clean Energy and Environment Practice, Enzen Global Solutions Pvt Ltd.
The government of India has let the deadline lapse on the proposed imposition of anti-dumping duties on cells and modules manufactured in China, Taiwan, Malaysia and the Unites States. How do you see this move? Was it a surprise?
We view the government of India's decision to let the anti-dumping duties lapse as a positive and pragmatic approach to meet the target set under the Jawaharlal Nehru National Solar Mission (JNNSM). It seems that the decision is taken after careful consideration of various factors such as domestic manufacturing capacity, cost of the system and government's commitment towards cleaner technology promotion and sustainable development.
The fact of the matter is that under the Jawaharlal Nehru National Solar Mission the government of India has set a target of achieving 22,000 MW of solar capacity by the year 2022. Since the idea of AD was officially recommended in 2022, the solar PV industry has reacted very negatively. Over 1000 MW of solar projects have been suspended and, in May and June 2014, there was no increase in installed capacity of solar power. In the same period last year, 73 MW of solar power was installed. Only about 1000 MW of capacity has been added in the entire country in the last two years, bringing us to a total of 2500 MW, leaving us well short of the intended Phase 2 target of achieving between 4000 to 10000 MW of installed solar capacity (which is to be achieved by 2017).
Therefore, it is not surprising that the Ministry of Power opposed the imposition of AD, which was considered and let to lapse of the deadline.
Do you think that the move has again increased the chances of a "face-off" between solar developers and manufacturers?
Don't think so. AD is not an ideal solution to promote domestic manufacturers. The anti-dumping duty will increase the cost of system and power produced, which will make the solar project not economically viable. It will reduce the demand and affect the growth of solar market in India.
The proportion of companies that actually manufacture solar PV within India is small. In fact, a large majority (75-80 per cent) are aggregators, who import solar cells to assemble into modules. Thus, they would be as susceptible to AD as solar developers since they also rely heavily on imports.
Local PV manufacturers may be lured by the protectionist nature of AD as they have invested over Rs 10,000 crore in setting up their facilities. They also claim that letting the AD notification lapse will lead to the loss of 25,000 jobs. However, as per reports, only 30 per cent of these jobs are in solar PV manufacturing itself. The remaining 70 per cent are in activities like installation, commissioning and maintenance, which will cease to exist if projects get cancelled. It should be noted that solar in India is a low-margin industry, and companies will not be able to bear the 8-10 per cent increase in costs due to the imposition of AD, leading to projects becoming unviable and eventually cancelled.
From the perspective of the manufacturers, AD will not be helpful in the long run either. Approximately 80 per cent of their operational capacity is currently being exported. Imposing AD might result in a backlash from some of the export markets, thereby reducing their demand.
Do you think that India's solar industry is collectively breathing a sigh of relief that a disaster has been averted and the projects that were stalled can now re-start?
Yes. It is good news for the solar industry and I believe that many of the stalled projects may resume now.
Approximately 3500 MW of solar projects were already tendered but got stalled due to expected increase in the cost posed by AD. One such example is a leading solar project developer cancelled its 20 MW project, following the AD announcement, as it was worried about the additional costs of sourcing its equipment domestically (estimated increase of 10 per cent) and the ability of Indian manufacturers to produce the required quantities and of necessary efficiencies. The reversal of AD will renew the confidence in the industry and eliminate uncertainty as to the future regulatory push from the government.
How optimistic are you on future prospects, as we have not seen any movement in the industry since the deliberate lapse of AD?
There is already a sign of positive development. Developers, financiers are gaining confidence. The results will be visible soon.
However, revoking AD is only one step towards reviving the solar industry in India. What is needed is structural reform in the renewables sector. Demand must be stimulated through policies and incentives that are enforced with conviction. Renewable Purchase Obligations are not currently imposed, the government must issue a mandate for adoption of solar energy in blocks of five years or so rather than merely set targets to be achieved.
Financing remains one of the biggest hurdles for local companies to compete with imports or even assemblers. EXIM banks in the US and China offer loans at lower interest (3-4 per cent) to solar PV importers. Thus, it's easier for them to obtain low-cost financing through imports than from local banks that charge interest rates of up to 10 per cent.
Lastly, there needs to be greater investment in solar R&D from both government as well as the industry to increase the efficiency of domestic manufactured cells and panels.
Shall we call this as a pragmatic, 'big picture' decision by the new NDA administration which will remove uncertainty and put the solar industry back on track for sustainable, long-term growth? Or have they just averted the wrath of solar developers overlooking demands of solar PV manufacturers?
While it may seem that the decision not to implement AD favors developers over solar PV manufacturers, the latter will reap the benefits of a competitive market in the long run. Manufacturers should be incentivised to invest in R&D and bring their technology up to par with the US and China, while the government should develop policies to promote renewable energy financing.
Currently, Indian manufacturers are only utilising 15 per cent of their operational capacity and a majority of their products are exported. Implementation of AD would have reduced competition for local manufacturers but would also shrink the market, with more solar projects being cancelled due to high costs and diminishing investor confidence in the solar market.
So, yes, it is a pragmatic, big picture decision taken by the government which will remove the uncertainty and help in achieving the long-term growth of the Indian solar market, for developers and manufacturers alike.
How will the lapse of AD help to scale up solar power projects in India? To what extent do you think it can go up to?
If the AD has not lapsed, domestic manufacturing facility could have supported the new additional installed capacity to the tune of 500 MW only during the current year, which is far below the required addition of 5-7 GW installation per year. About 1 GW worth of projects, which are stalled due to AD can resume now and the potential target of 2-3 GW can be achieved.
With the correct policies and regulatory push, as well as commercial parity, the NSM target of 20 GW of solar power by 2022 can be achieved.
- Rahul Kamat
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