Financial & Assorted Concessions: Sops for local production in new solar policy

By: | Published: May 1, 2018 4:06 AM

In a move that could brighten the prospect for domestic solar equipment manufacturers, who are in the throes of fighting cheaper Chinese imports, the government is set to finalise a comprehensive solar manufacturing policy by the end of July.

solar, solar power, solar policy, Manohar Parrikar, solar policy, Solar Power Policy, Joint Electricity Regulatory Commission, solar power generation plantThe MNRE intends to launch a programme where power purchase agreements for 20 GW of solar PV capacities will be allocated on an open-tender basis to prospective manufacturers.

In a move that could brighten the prospect for domestic solar equipment manufacturers, who are in the throes of fighting cheaper Chinese imports, the government is set to finalise a comprehensive solar manufacturing policy by the end of July. The policy will seek to incentivise local production of inputs (cells, ingots, wafers and polysilicons) to create a complete ecosystem for end-to-end manufacturing of solar panels, people close to the development told FE. Most of these products are currently imported. The policy proposes a direct financial support of more than Rs 11,000 crore and an indirect support by way of assorted concessions.

According to the sources, the Ministry of New and Renewable energy (MNRE) has sought an additional budgetary approval from the Ministry of Finance to provide capital subsidy, interest subvention and funding for technology upgrade under an integrated solar manufacturing policy. The MNRE, sources said, also asked for the lowest slab of 5% GST on all components required for setting up a solar power plant. At present, India produces about 5,000 MW of modules and 1,500 MW of cells, but there is zero production of wafers, ingots and silicons that go into making of modules or solar panels. India depends entirely on imports of these products, mostly from China.

Given the government’s target of setting up 100,000 MW of solar capacity by 2022, it is estimated that for the long-term security of these projects, about 70-75% of inputs should be manufactured locally. The MNRE in December 2017 invited expressions of interest from interested players to set up 20,000 MW of vertically integrated solar manufacturing capacity over the next three years. The concept note prepared by the MNRE said the policy would extend support to manufacturers of solar cells and modules to expand and upgrade the existing facilities or set up new manufacturing units for solar products at par with international standards. The objective is to eventually have the entire spectrum of manufacturing – from poly-silicon to modules, it said.

The support proposed include revival of domestic content requirement (DCR) through expansion of the CPSU scheme. The government is planning to increase the domestic content requirement in solar component manufacturing under the central public sector undertakings (CPSU) scheme without violating the WTO provisions. Earlier, 3,500 MW of projects under DCR had to be cancelled due to WTO incompatibility. “In the light of successful implementation of the 1,000 MW CPSU scheme, it has been proposed to have an additional CPSU scheme of 12,000 MW. This would have an assured DCR component, allowing domestic manufacturers an assured market, enabling them to be secured while they scale up capacities,” the MNRE concept note said.

Vineet Mittal, chairman of Solar Power Producers Association, said the policy will help create an entire ecosystem for development of the sector. Around 12-15 new industries are likely to come up, such as glasses, sheets, junction box and aluminium sheets, to cater to manufacturing for solar components so that everything gets localised. The best part is manufacturing units can be set up anywhere, depending which state offers the best policy and other support that can be used along with the central policy, Mittal said.

The MNRE intends to launch a programme where power purchase agreements for 20 GW of solar PV capacities will be allocated on an open-tender basis to prospective manufacturers. This will ensure that modules, cells, and ingots produced at these manufacturing units are duly utilised in solar projects.

Gyanesh Chaudhary, MD & CEO of Vikram Solar, India’s largest manufacturer of solar modules, said it is a progressive document and the first step in the direction of making Indian manufacturers competitive internationally. However, “we should understand that monetary incentives such as capital subsidy and interest subvention reduce the cost of product only in short term. Once the whole ecosystem of manufacturing is established, solar industry should take three-four years to stand on its own feet and become cost competitive,” Chaudhary said.

According to a recent CII report, manufacturing cost of solar modules will decrease by 20% if module manufacturers are provided electricity at a flat rate of Rs 3.5/unit, capital at an interest rate of 8%, capital subsidy of 25% and equipment is exempted from customs duty. Panels manufactured in India are 8-10% costly, compared with imported solar modules at $0.32- $0.35/watt peak (Wp), depending on volume and quality of modules imported.

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