Covid-19 pandemic offers an opportunity to overhaul India's supply chains and reduce overdependence on imports for solar modules
By Vivek Sharma
Over the next two fiscals, India aims to add 100 GW of solar capacity, 66 GW of which would be greenfield, as part of its goal of achieving 175 GW renewable energy (RE) capacity by December 2022. This, when only ~22 GW were added in the past three fiscals. And now, there is also the Covid-19 pandemic to contend with, which has disrupted execution of ~28 GW of under-construction solar capacity. About 5-6 GW of these capacities may face delays owing to labour and modules shortage.
The lockdowns will also delay financial closure of new projects, stretch working capital needs of operational ones, and lead to adjustment in borrowing costs following re-rating. Sounds like the end of the world? No, it’s actually a chance to create more self-reliant pathways of growth.
To wit, before the Covid-19 pandemic struck, the Centre had taken measures to deal with sectoral bottlenecks – removal of tariff caps, payment security through LoC mechanism, tripartite agreements, and setting up of the Renewable Energy Investment Promotion and Facilitation Board and monitoring centres, among others. Given the extended lockdown, what should the government focus more on?
For one, now’s the chance to overhaul supply chains and reduce over-dependence on China for solar modules. Though some imports will continue, the thrust on indigenisation of solar module manufacturing must accelerate. India’s solar cells manufacturing capacity stands at ~3 GW (~18 companies) and of modules at ~10 GW (175+ companies) at present.
What is required is a complete chain of manufacturing, as against mere assembling of modules, with real value add being bought from China. If we are targeting at least 12-15 GW capacity addition a year, we would be adding to the imports bill by around Rs 40,000 crore annually unless the equipment can be produced in India. There are four facilitations the domestic solar manufacturing sector needs in this context.
Demand creation: Higher auctioning of manufacturing-linked tenders with green shoe options to create a sizeable project pipeline and provide demand visibility to domestic manufacturers.
A dedicated solar manufacturing policy that packages a clear roadmap for capacity addition with incentives such as readily available land and buildings, tax/duty exemptions and cheaper power. The focus should also be on creating solar zones with GW scale wafer, cell and module producing facilities to meet domestic needs as well as tap global markets. Cost reduction through economies of scale can help India compete against global supply, which is about 20% cheaper than domestic products.
Project financing that makes available long-term project loans with lower interest rates and, coupled with government grants, lowers product costs. For example, in Brazil, a lower interest rate is charged if the procurement is from a domestic manufacturer. A similar idea needs to be thought through. Maybe an Alternate Investment Fund can facilitate low-cost and long-term financing for manufacturing in India.
Research and development supported by greater investments by the Centre as well as through networking with domestic and global institutes, industries, and associations such as International Solar Alliance.
A hard push for domestic manufacturing can certainly reduce our dependence on imports. And though it would be a gradual process and impose some costs in the short term, it would help secure solar supply chains against externalities. It would also ensure required spares for operational capacities, provide product warranties, and ease performance-related worries. Plus, a competitive solar manufacturing ecosystem would sync well with the ‘Make in India’ goal, help achieve at least partial self-sustainability, create thousands of jobs, and have a multiplier impact on the economy.
The writer is Senior Director, Energy, CRISIL Infrastructure Advisory