Cheap import is hitting Indian solar manufacturers hard. Some of them are even facing financial collapse. The inside report.
India has chalked out an ambitious solar programme of setting up 100 GW of solar power capacity by 2022. In fact, India’s solar power generation capacity has already more than tripled in past three years to over 14 GW as the government targets to increase energy generation from all renewable sources to 175 GW by 2022.
However, solar power tariffs in India has witnessed unprecedented fall in past couple of years, largely owing to the fall in imported solar panel prices and competitive bidding scenario prevalent in the industry.
Cell and module prices across the solar value chain have fallen by 15 to 20 per cent in 2017. According to Ketan Mehta, CEO, Rays Power Infra Pvt Ltd, “Price erosion has been driven by technological improvements, easy access to raw materials, supply chain efficiencies and huge investments offered by the governments to expand manufacturing.”
Factoring upsides such as decline in input prices, refinancing at lower rates and higher grid availability are few of the challenges that solar players have had to go through several times. “Since modules account for 55 to 60 per cent of the project cost, barriers to entry have reduced leading to heightened competition,” opines Mehta.
“Added benefit to the Chinese companies only”
Manish Gupta, President, North India Module Manufacturer Association (NIMMA) observes, the rising Indian solar market has only added benefit to the Chinese companies at the cost of domestic manufacturers. According to industry data, Chinese companies have gained the most from that increase, accounting for around 85 per cent of India’s solar module demand and earning around $2 billion. The total annual market could jump to more than $10 billion in the next few years going by the government’s capacity targets. “The cost of solar PV cells has dropped precipitously in the past few years due to a glut of cheap Chinese supply, and that’s great news for nearly everyone—except the domestic manufacturers. Some of India’s biggest solar equipment makers are facing financial collapse, priced out by Chinese competitors as the government prioritises cheap power over local manufacturing despite their ‘Make in India’ initiative,” noted Gupta.
Chinese solar equipment is cheaper than Indian mainly due to economies of scale at its manufacturing units. Inflow of cheap modules, supported by Chinese government subsidies, has harmed the Indian module-manufacturing sector in the past five years. Chinese solar product makers, who are facing an overcapacity at home and steep duties in Europe are dumping their products in India.
The installed capacity of domestic solar cells and modules in the country is estimated to be 3,164 MW and 8,398 MW respectively, while operational capacity of solar cells and modules is 1,667 MW and 5,506 MW respectively. According to Gupta, “More than Rs 85,000 crore worth of investments in the country has been lying idle due to the influx of Chinese imports and thus resulting in creation of self-inflicting loss making industry.”
“Chinese products are of far inferior quality”
Kunwer Sachdev, Managing Director, Su-Kam admits that cheap imports, especially from China, have taken a toll on Indian solar manufacturers. He adds, “India had exported almost $1 billion in solar modules before the National Solar Mission was set up. Growth in demand provided a fillip to solar exports in 2008. However, as manufacturing took off in China, prices dropped to record low levels. Solar module prices fell from $1.80/W in the beginning of 2011 to $0.65/W by end of 2012. State-funded Chinese manufacturers captured most of the global market to such an extent that Indian companies are unable to cash in on incentives offered by the government. About 88 per cent of all module requirements in India are met through imports out of which 84 per cent are from China. Most of us are unaware of the fact that Chinese products are of far inferior quality than that of India and can cause our appliances to malfunction. Moreover, Chinese companies indulge in misrepresentation of facts and do not provide any assurance about the lifecycle of the product.”
“Competing with Chinese market is biggest challenge”
According to Fahad Khateeb, Director, IndiLites LED Lighting, Chinese imports have always held back Indian manufacturers from creating a market for themselves, primarily, because the costs involved in producing a product in India is higher than that in China. This has been the scenario in the case of solar manufacturers too.
The solar manufacturing industry in India is in its infancy stages. There is a lot to learn and grow before the industry becomes capable of using 100 per cent Indian manufactured solar panels. One thing for instance, Indian manufactured solar panels have lesser efficiency (around 12-14 per cent). Chinese products have now reached an efficiency of almost 20 per cent which makes ‘Made in India’ panels heavier in both volume, as well as cost, to generate the same amount of power, informed Khateeb. He adds that our infrastructure and government policies make the transition from older technology to newer technology a long and arduous process. “Indian manufacturers are forced to focus only on pricing, as competing with the Chinese market is their biggest challenge. This somehow puts the quality control and new research in jeopardy, resulting in inferior quality product,” said Khateeb while raising the concerns.
“Manufacturers unable to keep pace with change”
On the other hand, Sanjay Aggarwal, Managing Director, Fortum India believes that, solar manufacturing industry in India has not been able to keep pace with the evolving technological efficiencies, scale of production, developed supply chain etc. which would help them compete with the large scale Chinese manufacturers. Citing the example, he said, “India’s module manufacturing capacity of slightly over 5 GW and cell manufacturing capacity of over 1.5 GW is no way close to China’s capacity of over 50 GW annually.”
Moreover, Aggarwal points out, “Indigenous items make barely 10-20 per cent cost contribution in the production of domestic solar modules. Given the fact that manufacturing in India is sub-optimal, developers tend to favour cheaper imports in expectation of lower tariff, as the modules account for nearly 60 per cent of a solar power project’s total cost. It is more or less grappled with similar issues that are/were being faced by most of the manufacturing industries in India and one might argue that India has missed the solar ‘manufacturing bus’ in its initial phases.”
“Only cheap imports cannot be blamed”
India has ambitious targets for solar energy which is possible only when we source and secure access to best of product and services from across the globe at the best possible price, views Shailendra Bebortha, Managing Director, IBC Solar Projects Pvt Ltd. “Indian solar industry is over dependent on imports. We spend billions of dollars in importing solar equipment every year. One of the objectives of renewable energy in India was to reduce the dependence on import of oil and to reduce foreign currency out-go. The high level of imports defeats that purpose to some extent,” Bebortha acknowledges.
However, commenting on ‘cheap imports’, he said, “The truth can only be established after proper investigation by a credible agency. In a free market place, buyers shall choose the best choice available. While cheap imports may be hitting Indian solar manufacturing, it can also be argued that solar manufacturing in India has lack of scale and cost-competitiveness. Only cheap imports cannot be blamed for low level of solar manufacturing in India.”
Incentivise advanced manufacturing
In India, the Directorate General of Anti-Dumping and Allied Duties (DGAD) is carrying out an investigation to assess and analyse potential injury to the domestic manufacturers following Indian Solar Manufacturers’ Association (ISMA)’s several parallel petitions. However, while the investigation can take up to 12 to 18 months, there are talks of provisional anti-dumping duty coming into effect which is expected to cause some concerns for developer. “While the petitions would be taken up on merit and outcome will be based on data provided, such duties if levied should be exempt from projects already under construction or awarded. A suitable policy should enable this instead of developers second guessing the outcomes,” demands Aggarwal.
Moreover, he feels, anti-dumping duty would not help the country in long run as the additional duty shall increase solar power tariffs and reduce demand for solar power from DISCOMs who are the ultimate buyer of this electricity. “A more concerted effort is required to revive solar manufacturing industry in India. We need to move away from policy of subsidising inefficiency and rather start incentivising manufacturing companies that invest in next generation technologies or processes. This would help India be a niche player in solar manufacturing value chain and would give an edge over Chinese counterparts in future
solar technological improvements,” Aggarwal recommends.
Give a level playing field
Shailendra Bebortha of IBC Solar Projects believes that the best way forward would be to provide Indian manufactures with an equally attractive eco-system to complete with global suppliers. He adds, “Low cost capital, interest or capital subsidies, reliable supply of power, easy land acquisition could be some of the triggers which shall go a long way in building the competence. Further, Indian industry need to re-invent and re-search to develop new and more efficient products which could off-set some of the price advantages overseas suppliers might have due to scale or experience.”
To safeguard their interests and to build a healthy domestic manufacturing base the industry has been asking for a level playing field from the government. The remedial measures, as suggested by Manish Gupta of NIMMA, include:
• Imposition of anti dumping/ safeguard duty against cheap imports.
• Hassle free, time bound and transparent special incentive package for setting up large domestic manufacturing base.
• Availability of lower interest rate funds for solar manufacturing sector.
• Robust quality norms to prevent cheap, inferior products.
• Investment in research & development for increasing efficiency.
Though artificial trade barriers, import restrictions and additional duties could be temporary reliefs, these measures may result in increase in cost of solar power without adding any long term competitiveness to Indian manufacturing, suggests Bebortha.
Introduce stringent laws to curb imports
According to Fahad Khateeb of IndiLites LED Lighting, the best way to counter this (cheap imports) would be to introduce stringent laws for products being imported. Though the government has already taken steps to curb the import of lower quality products that generally flood the Indian markets, implementation of the BIS rule for solar panels, which is yet to be introduced, will play a significant role for Indian manufacturers, anticipates Khateeb.
Promote Make in India
Cell manufacturers in China and Taiwan continue to enjoy good margins and hence MNCs are expecting cell prices to come down further. MNCs are bidding after factoring this decline in project costs. Ketan Mehta of Rays Power Infra believes that it (cheap imports) can be countered only by having large scale production and adopting latest technology by promoting Make in India. However, he observes, meeting raw material cost shall be a challenge but cell part can be imported so as to reduce overall cost of module.
Kunwer Sachdev of Su-Kam also opines that the need of the hour is the larger policy framework to encourage domestic manufacturing. He said, “The government schemes such as ‘Make in India’ can go a long way in weeding out inferior Chinese products from the market. Though the recent government has accorded a slew of incentives to promote solar energy, most of them remain only on paper. The problem lies in their tardy implementation.”
Support for large scale projects and fully integrated manufacturing plants can also complement the ‘Make in India’ policies in the future. Incorporating solar manufacturing in National Skill Development Mission training plans can help in creating a skilled workforce, reinvigorate Indian solar industry and boost employability, comments Sachdev.
Aggarwal from Fortum India concludes by saying that policy makers have a tough job to ensure demand for domestic modules on one hand and keeping the tariffs low and achieving the target of 100 GW by 2022 on the other.
Manish Gupta, President, North India Module Manufacturer Association (NIMMA)
Fahad Khateeb, Director, IndiLites LED Lighting
Sanjay Aggarwal, Managing Director, Fortum India
Shailendra Bebortha, Managing Director, IBC Solar Projects Pvt Ltd
Ketan Mehta, CEO, Rays Power Infra Pvt Ltd
Kunwer Sachdev, Managing Director, Su-Kam