Indian manufacturers ‘elated’ with 12GW domestic content solar scheme

India has approved a 12GW solar scheme for central public sector undertakings (CPSUs), which are state-owned enterprises, spanning the military, health, energy, government and mining sectors, among others.

Importantly, the scheme mandates the use of domestically sourced solar cells and modules. Talk of such a programme has been in the works for more than a year as the government tries to appease demand at home not just to support solar PV deployment but also to foster a domestic manufacturing industry and reduce the dependence on Chinese imports.

Ministry of New & Renewable Energy (MNRE) first proposed the 12GW CPSU scheme, which has now been approved by the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister Narendra Modi, with significant Viability Gap Funding (VGF) subsidy support of INR85.8 billion (US$1.2 billion).

Time is precious

Sunil Rathi, director at Indian PV manufacturer, Waaree Energies said: “We are elated with CCEA’s inclination towards boosting domestic module and cell manufacturing in the country, by allocating 12GW of PV projects exclusively to domestic players. The move is expected to have a dampening short-term and a positive long-term impact on the industry. While on the face of it, the proposal is set to provide relief to solar domestic manufacturers for the next four years, even with immediate implementation, the on-ground reality indicates a gestation period of at least a year, till this proposal actually yields operational benefits. The move fails to provide the much needed immediate support to the sector, due to which, mid-scale players may not be able to sustain the pressures for the next year.”

“On the upside, this proposal is bound to attract foreign investment in the long run. We foresee players from China and Malaysia setting up manufacturing hubs in India, thus furthering the ‘Make in India’ initiative. Moreover, while there are ample module manufacturers in the country to meet the government demands, the proposal would provide impetus to existing and new players to venture into cell production, thus creating job opportunities and enhancing the GDP contribution in the long run,” he added.

H.R. Gupta, general secretary of India Solar Manufacturing Association (ISMA) and managing director of Indian cell manufacturer Indosolar, told PV Tech that he was also “elated” with this “well thought out” plan. He agreed with Rathi that the caveat at present is that smaller players might struggle if the scheme is not expedited.

However, there is already planning to accelerate the rollout, with Gupta meeting with government tomorrow on this topic. Gupta said it is also in the government’s interest to speed up the rollout in order to meet UN climate objectives and its own 2022 solar targets. The scheme requires around 4GW of installations a year and if the government loses one year that will be problematic.

“Some big entities like NTPC and others can be cajoled to get to the ball rolling,” he added. “Time is a precious commodity now and they have to think in terms of every month, what will they add, otherwise they will overload the system.”

While Distribution companies (Discoms) have been cancelling multi-gigawatts of completed solar auctions due to discovering higher than expected tariffs over the last year, the CPSU scheme protects against that because the power generated is for self-consumption by the CPSUs rather than for sale to the Discoms. Moreover, any high tariffs will be mitigated by the huge US$1.2 billion VGF subsidy support.

Gupta noted that all of the CPSUs, whether in steel, oil and gas, railways or defence, have a huge amount of internal power demand, while the utility NTPC itself requires 8-9GW of auxiliary power.

“So we’ve done the homework. We see there’s much more than 12GW demand from CPSUs and its WTO-compliant as they are not selling the power to the consumer,” he added

Background

An original 10GW solar tender, combined with 5GW of manufacturing had a turbulent ride last year, as its capacities were reduced and players consistently failed to show interest. Even after drawing local firm Azure Power to bid for 600MW of manufacturing and 2GW of solar capacity, Solar Energy Corporation of India (SECI) still decided to scrap the bidding. Last week, SECI released its latest attempt with another size reduction to 3GW solar / 1.5GW manufacturing. In this case, the maximum tariff payable to the project developer is fixed at INR2.75/kWh (~US$0.039) for 25 years.

Sanjay Sharma, general manager at SECI, told PV Tech that this tender will still go ahead and it expects greater participation from players as it is has removed the focus on ingots and wafers to now including modules and cells only. However, the combination of solar project development and manufacturing is highly problematic as it requires joint ventures or non-integrated companies to enter territory outside of their expertise.

The new CPSU scheme has been deemed a chance to support domestic manufacturing whilst also staying compliant with World Trade Organisation (WTO) rules. A WTO complaint had thwarted India’s original local support programme known as the Domestic Content Requirement (DCR) back in September 2016 and the Indian government has been searching for other ways of incentivising ‘Make in India’ ever since. One attempt was its safeguard duty on solar imports brought in last July, but this has now been widely labelled as an own goal that failed both to draw new manufacturers to India and to alleviate the financial woes of existing Indian manufacturers. The safeguard duty period was only set for two years, despite that timeframe being considered the minimum required to set up new manufacturing capacity, effectively rendering the duty redundant.

Gupta said the manufacturing-linked PPA model will go hand-in-hand with the CPSU scheme rather than being exclusive to each other.

“If they are thinking what would be the right solution to attract investment from the likes of Softbank, GCL or others – they are interested in 1, 2 or 3GW fabs and they can promise large PPAs accordingly,” added Gupta

The grid-connected power projects for CPSUs are to be set up between 2019/20 and 2022/23, requiring INR480 billion (US$6.7 billion) investment. The Indian government believes the programme will provide 60,000 jobs during one-year construction phases and 18,000 full-time O&M jobs over a period of 25 years. It also envisions 120,000 jobs when including the manufacturing roles it hopes to spur.

Sharma said that SECI will be facilitating some of the tendering involved in the scheme but other agencies may also be involved. It is too early at this stage to provide further details, he added.

Gupta was delighted with the programme as he said that India spending several billion dollars a year on imports of solar cells and panels was “one of the most shortsighted things” it could do.

In other news, the CCEA has also approved a proposal for continuation of the scheme of ‘Exploration of Coal and Lignite’.

The PV India Tech conference will be held in New Delhi on 24-25th April 2019.