China’s New Renewable Energy Policy and Its impact on India

China’s new renewable energy policy, which terminates approvals for new subsidized utility-scale PV power stations, has reduced the demand for solar components in world’s leading solar installer. Over the last decade, China created solar manufacturing scale and became the biggest supplier of solar equipment in the world. After gaining such a mantle, reducing its own green energy targets is most likely to reduce solar module prices further globally.

Why This Sudden Change?

Growing subsidy cost for solar in China stood at $15.6 billion in 2016 and country’s failure in paying out these sums, led the Government in China to reduce its energy targets, to stop the economic haemorrhage. However, the huge volume of solar modules manufactured in China for its internal market will now flood the global market at a much lower price, thus dismantling domestic solar manufacturing industry in other countries. Estimations suggest that solar component prices will drop significantly from 32% to 36% now and will further drop 10-15% in future. This uncontrollable price drop will push domestic manufacturers out of market and threaten the domestic manufacturing market, making solar energy reliance dream unviable.

How It Will Affect India

Indian solar industry is yet to mature and still dependant on foreign suppliers rather than its own manufacturing eco system. However, India has an evolving and growing solar module manufacturing industry, which has been facing challenge due to consistent module imports. Approximately 161.5 million solar panels were imported in India in FY14–15 amounting to almost $821 million cost. In FY 15-16, the expenditure jumped to $1.3 billion and within FY16-17, India spent $3.1 billion in solar equipment imports, which is about 35 times India’s solar equipment export. In FY17-18 the expenditure stood at $3.8 billion, promising to rise in later years.

Besides, the most recent policy implementation, which also imposes Safeguard Duty on solar cells and modules manufactured in special economic zones in India, threatens to deal a damaging blow to the industry. In such a scenario, pushing solar module prices down 32% to 36% due to China’s new energy policy will certainly drive domestic solar panel manufacturers of India out of the industry. Therefore, nascent solar industries like India need protection from incoming influx of cheap solar modules from China, to save the dream of solar energy reliance.

Way Forward

Protecting the domestic solar manufacturing industry is the only way to control the solar energy future within a country. And since India’s support towards green energy transition is powered by the dream to develop a better industrial, economic and social structure, gaining reliance on energy has to be a priority. However, increasing imports and policies like safeguard duty that target domestic manufacturing have to be modified to create a favourable environment for solar growth. Dependence on Chinese suppliers has limited domestic manufacturing growth and made Indian solar sector susceptible to the incoming module oversupply issue. Domestic manufacturing industry has to be prioritized if this and other similar issues that will surface in near future, are to be averted.

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