India’s plans to promote domestic manufacturing have finally started gaining traction after years of slow progress. So far, domestic solar manufacturing capacity has failed to keep pace with the scale of deployments and thus India has been heavily dependent on imports, especially from China, to meet its requirements. However, recent months have seen announcements from various manufacturers – both old and new – regarding expansion of their domestic production capacities. The Indian Renewable Energy Development Agency (IREDA) also recently released a list of shortlisted bidders for 10 GW of manufacturing capacity under the government’s landmark production-linked incentive (PLI) scheme.
This huge enhancement in domestic manufacturing capabilities has been on account of a host of factors. These include the supply disruptions caused by the coronavirus pandemic, which led to the promotion of manufacturing hubs in the country; the imposition of a safeguard duty and the more recent basic customs duty (BCD); the registration of solar module manufacturers under the Approved List of Models and Manufacturers (ALMM); and the much-needed PLI scheme.
In this article, we examine each of these factors in detail and present a calibrated view on the domestic manufacturing scenario for solar cells and modules…
Pandemic-led supply chain constraints
The pandemic led to a shutdown of all industries, including solar manufacturing units, in China and the rest of the world, disrupting the global solar supply chain. India, which depends heavily on Chinese imports for the bulk of its capacity, suffered from supply constraints, leading to significant delays in project development. Thus, the country’s solar deployment plans were severely impacted during the initial months of the pandemic, and it took some time for supply to normalise. This presented a strong case for the expansion of domestic manufacturing capabilities and diversification of supply chains to ensure sustainability in product availability. Prior to this, government efforts such as the imposition of safeguard duty, introduction of domestic content requirement in specific public sector undertaking-linked projects and manufacturing-linked tenders had not been as effective in generating the required traction for locally sourced solar cells and modules.
The case for local manufacturing only got stronger in the wake of border tensions with China in the Galwan Valley. Seeing an opportunity to reduce import reliance on China, in early 2020, the government wrote to various state governments and port authorities to identify land parcels ranging from 50 acres to 500 acres for setting up renewable energy equipment manufacturing parks. Reportedly, the Tuticorin Port Trust and the Madhya Pradesh and Odisha governments have expressed interest in setting up such parks. These facilities will be used to manufacture equipment such as silicon ingots and wafers, solar cells and modules, wind equipment, and ancillary items such as backsheets, glass, steel frames, inverters and batteries. These manufacturing hubs will also enable the export of equipment to the rest of the world. In addition, the Ministry of New and Renewable Energy (MNRE) has set up the Renewable Energy Industry Facilitation and Promotion Board to streamline investments in the sector.
Import duties and safeguards
There have been reports that foreign solar cells and modules, especially Chinese ones, are cheaper than local products. Thus, the government has taken significant steps over the past few years to offer a level playing field to local and foreign manufacturers in terms of pricing, including the imposition of a safeguard duty and then BCD on the import of solar cells and modules from various countries, including China. The safeguard duty was first imposed in July 2018 for a period of two years. Starting from 25 per cent in 2018, it was progressively reduced to 15 per cent by July 2020.
In order to further promote the interests of domestic manufacturers, the government decided to extend the provisions of the safeguard duty for one year, with a duty of 14.9 per cent being levied from July 30, 2020 to January 29, 2021, and 14.5 per cent from January 30, 2021 until the end of its tenure on July 31, 2021. No further extension has been announced.
Instead, a BCD of 25 per cent on solar cell imports and 40 per cent on solar module imports has been imposed, which will come into effect from April 2022 onwards. This BCD has to be considered by all implementing agencies in their bids and by developers in their tariffs. Further, this BCD will not be considered a “change of law” in tenders due to the ample notice given to all concerned stakeholders.
The industry’s response to these duties has been divisive. Manufacturers believe that it is a step in the right direction and will improve their prospects and prevent dumping of foreign goods. However, some feel that the brief period after the expiry of the safeguard duty and before the BCD comes into effect may lead to a huge surge in imports and impact the interests of local manufacturers. Developers, meanwhile, feel that these duties may impact project costs and hike tariffs, which could raise offtake concerns for discoms. Moreover, as of now, the local manufacturing capabilities may not be sufficient to cater to the scale of demand in India. The lack of clarity regarding the tenure of the new BCD has created further uncertainty for both developers and manufacturers. The consensus is that while import restrictions are necessary to promote local capability, they should be implemented in a phased manner so as to not hurt the interests of any stakeholder.
Registration under the ALMM
The ALMM scheme was initiated with the objective of ensuring the reliability of solar PV manufacturers and protecting consumer interests. Eligible models and manufacturers of solar PV cells and modules that are compliant with BIS standards can list under the scheme, which is valid for two years. Only ALMM-listed solar cells and modules are to be used in government tenders, as per an MNRE notification issued in January 2019. Thus, this registration is compulsory for all manufacturers supplying equipment to government projects.
While a seemingly simple process, its execution has been riddled with challenges, leading to the implementation deadline being extended several times. Thus, there has been a lot of uncertainty among developers regarding the right party to source modules from. The MNRE finally published a list in March 2021, to which additions have been made time and again, with the latest version being released in September 2021.
Interestingly, all the 34 manufacturers mentioned in the list have their production facilities in India. However, this was expected as the ALMM verification process, which requires quality checks, is quite protracted, cumbersome and challenging for foreign manufacturers. The pandemic, with its travel restrictions, also made factory inspections difficult, further delaying the process. Moreover, all models included in the list are rated below 400 W, while bifacial technology does not even find a mention, raising concerns regarding the adoption of advanced technologies. While it is a step in the right direction to ensure the installation of
quality equipment, the complicated process and the uncertainty regarding foreign manufacturers have left the industry in a flux. Even now, it is a wait-and-watch situation, as the industry hopes for greater clarity regarding which players to source their equipment from.
PLI scheme for solar manufacturing
Perhaps the most important of all the measures taken by the government to promote local manufacturing and exports under the Atmanirbhar Bharat initiative is the PLI scheme, which was approved by the cabinet in April 2021. A financial outlay of Rs 45 billion has been sanctioned for the implementation of the PLI scheme under the National Programme on High-Efficiency Solar PV Modules over a five-year period. The programme is set to create an additional 10,000 MW of integrated solar PV manufacturing capacity and entails a direct investment of Rs 172 billion in manufacturing projects.
Eligible manufacturers will be selected following a competitive bidding process. The incentive will be disbursed for five years after the commissioning of the solar manufacturing plants. Further, manufacturers will be rewarded with an increased PLI amount if their modules are manufactured with higher efficiency and the material is sourced from the domestic market.
To this end, IREDA invited applications for setting up manufacturing capacities for high efficiency solar PV modules under the PLI scheme in May 2021. Reportedly, this scheme received bids for 54.8 GW of capacity. Companies have submitted bids for manufacturing one of either polysilicon, wafers, ingots, cells or modules, or all, or a combination of two or more, based on their capabilities.
The PLI tender was concluded in October 2021, with IREDA shortlisting the eligible bidders. The agency will now decide the PLI to be disbursed to them. Preference will be given to players quoting the lowest PLI amount for the bid capacity. According to some initial reports, Adani Infrastructure, Jindal India Solar, Reliance New Energy, and Shirdi Sai Electricals had submitted bids to produce all components – right from polysilicon to final modules – and had quoted 4 GW of capacity. Jindal India Solar emerged as the L1 bidder, quoting Rs 13.9 billion PLI. Shirdi Sai Electricals, Reliance New Energy and Adani Infrastructure quoted Rs 18.75 billion, Rs 19.17 billion and Rs 36 billion to emerge as the L2, L3 and L4 bidders respectively. Meanwhile, a few players such as ReNew Power and CubicPV, showed interest in manufacturing ingots, wafers, cells and modules, and others such as Tata Power Solar, Vikram Solar and Waaree Energies showed interest in cell and module manufacturing.
Owing to the capacity restriction of 10 GW in this scheme, the bidders will most likely be offered half the capacity that they bid for. Thus, there have been concerns that the PLI scheme will only support 10 GW of manufacturing capacity, while bids have been submitted for a much higher capacity. Moreover, as is evident from the list of shortlisted bidders, the PLI scheme has been popular amongst established players and large industries planning to enter the solar manufacturing space.
However, the need of the hour is to scale up manufacturing capacity, and do so quickly. The larger players are best placed and have the required investment capabilities to set up such production facilities. Once India has the basic cell and module manufacturing infrastructure in place in a few years, upstream supply chain production will automatically take shape and an entire production ecosystem will be created to support the country’s growing manufacturing industry. There is a lot of scope for all kinds of players to establish themselves in this space, owing to the massive capacities envisioned over the next few years.
According to the Export-Import Data Bank of the Department of Commerce, roughly $572 million worth of solar cells (not assembled) were imported by the Indian industry in 2020-21. Out of this, approximately $495 million worth of equipment came from a single country – China. However, interestingly, a significant decline in imports was witnessed during 2017-18 to 2020-21. The total value of solar cell imports was $3,837.57 million in 2017-18, which decreased to $2,159.73 million in 2018-19, $1,684.32 million in 2019-20 and just $572 million in 2020-21. The decline was quite significant between 2017-18 and 2018-19, most likely owing to the imposition of safeguard duty. The dip in imports was again quite pronounced in 2020-21, which can be attributed, to some extent, to the pandemic. However, an overall progressive decline in solar cell imports has been witnessed over the past few years. Thus, it is safe to assume that various factors such as import duty, the PLI scheme, the ALMM and even the pandemic-induced restrictions had a significant impact on import reduction.
That this is finally India’s moment to expand its domestic manufacturing capacity is evident from the series of recent announcements by various players, including Vikram Solar, Tata Solar, Adani Solar and Premier Energies, which are looking to expand their facilities. While these players are planning to expand their manufacturing facilities, established energy players such as ReNew Power, Azure Power and Reliance Industries have also announced plans to venture into this space. Moreover, in June 2021, Chinese manufacturer Jinchen Machinery announced the receipt of solar module production line orders worth about 10 GW from India. The list of companies that placed orders includes Waaree Energies, Vikram Solar, Tata Power Solar, Adani, Goldi Solar, Premier Energies, Solex and RenewSys.
To conclude, India is finally on its way to establishing a capable domestic manufacturing base for solar cells and modules. Going forward, the goal should be the adoption of advanced technologies and the production of quality and efficient equipment worthy of exports that are at par with other products on the global stage.