Solar energy: India needs a globally competitive solar panel industry

India’s rising solar ambitions necessitate creation of an indigenous, globally-competitive manufacturing industry for solar panels

solar, wind, 175 GW energy, solar capacity addition, 100 GW solar capacity, narendra modi, prime minister's goal, ministry of new and renewable energy

By Ajay Shankar

Following its success, the targets of India’s solar energy programme have been rising. To fulfil these, it is essential that policy instruments evolve suitably. Getting solar power capacity to cross 25,000 MW in less than ten years through private investment, and to get tariffs to come down, from over Rs 10 to less than Rs 3 per unit, has been the result of the initial program design of inviting repeated tariff-based bids for supply of solar power through the grid to the distribution companies. By awarding contracts to multiple private developers over the years, a competitive industry structure has been created.

India has taken full advantage of the global decline in the price of solar panels, as the Chinese reduced their costs of manufacturing dramatically. However, as the rupee depreciates, or the Chinese raise prices, the tariff, discovered through bidding, would also rise. Accepting higher tariffs is not easy, in the Indian context, in public procurement. But, not accepting them in a transparent competitive bidding process, would only slow down, or even stall, the solar energy programme.

The time has also come to target manufacturing of solar panels, with full value addition in India. Getting investment into solar panel manufacturing needs confidence regarding sales and profits. It would take about two years to set up a plant and begin manufacturing, after land with infrastructure is in possession. One viable approach could be to invite bids for the supply of 1,500 MW of solar panels, made fully in India, every year, for four to five years, starting from 2021. Land, with environmental clearance, at a reasonable price, along with commitment of direct, cheap power supply in a dedicated manufacturing Special Economic Zone (SEZ) should be on offer, as part of the invitation of bids. Cheap electricity is essential, as energy constitutes the major cost of production of solar panels.

The SEZ should have the special dispensation of having sales to the Indian market being considered as fulfilling its export obligation. The bidders, other than the lowest, could be given the offer of matching the price of L1, and get orders for the supply of 1,000 MW per year. It may still be the case that the market-discovered price is higher than that of Chinese panels; bids should still be accepted, and the bidding process continued in the following years, to bring prices further down. These solar panels may be used by government and its agencies, such as the Railways, defence and police establishments, and educational institutions. The issue of imposition of safeguard duties can be examined after there is manufacturing in India, with a competitive industry structure. Safeguard duties, at present, would be of little help. Such a comprehensive holistic approach would create a globally competitive manufacturing industry, without needing subsidies from the budget. Otherwise, the present import-dependence would be perpetuated.

Rooftop solar and decentralised solar power generation in rural areas in the KW range is yet to gather momentum. Having no transmission costs, this is far more economical. The ideal way for achieving a breakthrough would be to go in for an attractive feed-in tariff regime, with the approval of the State Regulatory Commissions. Trying to invite thousands of bids at the less-than-1MW range would end up being a non-starter. The distribution company should indicate the points at which it would be willing to buy solar power on a first-come, first-served basis, as well as the maximum it can take at the receiving point, along with the power purchase agreement. The receiving points could be the consumer connection point, with a reversible meter, the distribution transformer, or the sub-station. This should cover urban as well as rural areas. A farmer could buy solar panels, investing on his own. Alternatively, an aggregator could put up the solar panels on the land or rooftops provided by the farmer, and take the major share of the feed-in tariff till such time as he has recovered his cost. With solar power, supply of electricity for irrigation in the day, rather than in the night, as is the case now, could be assured.

A feed-in tariff of, say, Rs 4.5 would be cost-advantageous to the distribution company as its actual cost of supply at the consumer end is well over Rs 6 per unit. This would also be a major improvement from the net metering arrangement, where large consumer gets an effective feed-in tariff of around Rs 8 per unit, and a windfall gain, whereas the small consumer would get a lower rate of only around Rs 5. Providing reliable 24×7 power supply would become easier.

India has around six lakh villages. Getting up to 1MW capacity installed through a feed-in tariff in a village should not be difficult. Thus, creation of 6 lakh MW capacity of solar power through private investment in the next five to seven years appears feasible. India could take global leadership in solar energy, as well as in moving towards carbon-free electricity.

The author is distinguished Fellow, TERI
Views are personal

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 07-09-2019 at 00:35 IST