Solar installations in India reached 4 GW in 2016, and are
expected to surpass 9 GW in 2017, an incredible pace of growth considering
India installed just 883 MW in 2014. With exponential growth in the sector, the
government wants to ramp up domestic manufacturing to decrease the volume of
solar module imports which, along with installations, has also increased dramatically.
The challenge, like in most markets, has been cost competition from Chinese
manufacturers. India also lost the World Trade Organization (WTO)
ruling last year which decided that its Domestic Content Requirements (DCR)
discriminated against U.S. manufacturers. With this backdrop, policy makers are
looking at various options to support domestic manufacturers without violating
The Indian solar manufacturing sector was active long before any policy or significant market demand existed in
India. The sector mainly focused on original equipment manufacturing and
exporting to European countries. India had exported almost a billion dollars in
modules before the National Solar Mission was established. Exports
boomed in 2008 with massive growth in global demand, but the slump in 2009 (due
to the global recession) slowed the sector. As manufacturing took off in China,
prices dropped to record low levels. From the beginning of 2011 through the end
of 2012 module prices fell from $1.80/W to $0.65/W, a 65 percent drop. State
funded and subsidized Chinese manufacturers captured most of the global market
at the cost of manufacturers elsewhere, including
Installed capacity of domestic solar cells and modules in
the country is estimated to be 2,815 MW and 8,008 MW respectively, while
operational capacity of solar cells and modules is 1,448 MW and 5,246 MW
respectively as of December 2016, according to Mercom’s Manufacturing Tracker.
manufacturers paint a different picture. Most of them are of the opinion that
true working module manufacturing capacity was approximately 3 GW as of the end
of 2016. This huge disparity in figures is due to old and obsolete
manufacturing lines that are still being counted by manufacturers as “operating capacity”.
As of December 2016, an estimated 9.6 GW of solar has
been installed in India. In the seven
months from April to October in financial year (FY) 2016-17, export and
import activity totaling $1.22 billion (~Rs.83.22 billion) was registered in
the sector. Out of this, India imported solar materials worth more than a
billion dollars. This is not just because India lacks manufacturing capacity,
but it’s mostly because Indian modules are much more
expensive compared to Chinese modules.
Competing with low-cost imports, low profit margins and lack
of scale are all hurting India’s solar
“The major problems plaguing
the sector are a lack of scale, insufficient government support and an
underdeveloped supply chain,” stated
an official at Waaree Energies.
Access to financing is also a challenge. Manufacturers are
citing lack of funding available to build manufacturing units. “Even if private banks are willing to
lend, it is at exorbitant rates ranging from 16 to 17 percent,” stated Mr. Thakur of Shukra Solar, a
Financing challenges struck a chord with another solar
manufacturer: “You won’t find banks financing manufacturing
units because it is considered risky.” Any
financing that has happened so far is because of foreign direct investment,
voiced another manufacturer.
Most manufacturers agree that the DCR ruling by the WTO has
hurt the indigenous manufacturing sector. “The
government can still make DCR a pre-requisite for government tenders for projects
installed on government land or buildings,” stated
Manufacturers would also like to see more investment in
research and development to support new innovations that can bring down costs
over the long run. “The investment in research in
the sector is almost negligent compared to other countries like China,” commented another manufacturer.
The Ministry of New and Renewable Energy (MNRE) called a
meeting with manufacturers that have a capacity of 500 MW or more to discuss
these issues in June last year. The MNRE asked the manufacturers to build
polysilicon manufacturing facilities of about 500 MW each, either in
partnership with a foreign company or joining forces with Indian companies like
Waaree, Vikram and Goldi Green. In return, these companies would get independent power producer rights
to develop a 1,500 MW solar project at a fixed tariff by MNRE. “While the offer was made, we have not
heard back from MNRE on this topic,” said a
source at Vikram Solar.
were hoping for some kind of subsidy or incentive from the government to scale
up production but were disappointed that the current budget did not provide any.
Manufacturers also want more clarity around
state-sponsored incentives so they can determine which states are better and
more profitable for building manufacturing units.
According to Mercom, Indian non-DCR modules typically
cost about 10 percent more compared to Chinese modules. With highly competitive
auctions like the one we saw in Madhya Pradesh at the REWA solar park auction,
tariffs have come down below Rs.4
(~$0.059)/kWh for the first time to Rs.3.30 (~$0.049)/kWh. These tariffs are only viable
with cheaper Chinese panels, posing an even bigger challenge to local
The “Make in
India” program is the country’s push to focus on domestic
manufacturing to compete with Chinese manufacturers. The government is trying to promote domestic
manufacturing with a 20-25 percent capital subsidy and incentives such as
interest free loans and tax breaks, commented a MNRE official.
In addition to focusing on solar manufacturing through this program,
the government is also considering subsidizing solar manufacturing through Viability
Gap Funding (VGF) per an MNRE official.
The Goods and Services Tax (GST) is further expected to help solar manufacturers once
it is ratified by all states. “Currently,
manufacturers have to pay a countervailing duty of 12 percent and 5 percent Value
Added Tax. The GST will do away with these and help indigenous manufacturers
compete globally,” stated an official at
Ministry of Commerce.
the government is still tendering under its DCR
category, it is doing so at a slower
pace, and interest from developers for projects in this category is muted
due to higher costs.
What Lies Ahead
Developers meanwhile are thrilled at declining Chinese
module prices, without which most of the recent aggressively bid projects would
not be viable. The government, on the other hand, is saving hundreds of
millions due to low aggressive tariffs in auctions which reduces its offtake
bill, but this is only possible because of cheaper Chinese panels.
“Other than announcing DCR auctions for
government installations, there is no concrete policy proposal yet. Access to
financing at competitive rates is something many manufacturers are looking for.
Unless there is scale it seems like an impossible task to compete with Chinese
manufacturers on price,”
said Raj Prabhu, CEO of Mercom Capital Group. “Cheaper
infrastructure and R&D investment are other areas that the government can focus
on. American and European manufacturers have tried and failed to upend the domination of Chinese
manufacturers, and it remains to be seen how far the Indian government is
willing to go to support local manufacturers,” he