Meeting India’s Energy Demand through Domestic Manufacturing

International Energy Agency has highlighted in their recent report that India’s primary energy demand will double by 2040, surpassing countries like China in energy demand growth. Although this growth will be around half that of China’s energy generation today, it is certainly considerable. Current energy demand in India is ~172 GW, and although India’s total installed energy capacity is twice that, there is still a deficit of -1.4% (in Oct 2018). Factoring in fossil fuel’s limited reserves, it is easy to understand that the deficit will only rise. In addition, this invariably indicates that shift to solar energy is the right decision for India.

India’s energy demand has grown at 3.6% pa over the past 30 years. As International Energy Agency report suggests, India is supposed to become the second-largest coal producer in the world to satisfy the energy requirement, we can glimpse its effect on the climate, which is continuously degrading. Therefore, it can be stated that shift towards solar power transition is the only option ahead and the country needs to make aggressive changes to support that.

solar panels

Current Scenario

Energy generation capacity, usage, and expenses of a country impacts its economy. While depending on depleting fossil fuel reserve adds to a country’s expenses and pollutes the environment, solar energy adoption offers unlimited energy generation source, saves money in generating energy, and satisfies the demand. Therefore, it can be identified as an opportunity. Focusing on solar power adoption also promises to save billions on fossil fuel imports, creating jobs, foster industrial growth, bring technological growth, and help a country grow by claiming the export market.

Understanding the benefits, countries are joining the race to solarise their mainstream energy grid. As a result, PV project auctions in emerging markets rose by 4.5 times within 2013-17, while worldwide green energy (especially solar) acceptance is expected to lead to nearly 400% renewable energy growth within 2040. Since it has become a race, India needs to make faster efforts at leading the solar revolution.

However, reaping the advantage of solar opportunity depends on building solar panels manufacturing scale. For example, countries like China have risen to the mantle of top global solar supplier by building solar manufacturing scale and supporting domestic solar panel and cell manufacturers. Manufacturing scale has helped them to control the solar manufacturing and selling cost, undercutting market prices everywhere. This advantage has brought them revenue, investment created jobs, fostered technological and industrial growth and made them able to satisfy own energy demand.

India has also taken initiatives to follow the same path, supporting domestic solar panel and cell manufacturers. Make in India stands as one of these initiatives that had the potential to support domestic manufacturing and lead India toward a wholesome growth.

However, things have not turned out as expected. Currently, India is more focused towards importing solar equipment, which has resulted in huge forex outflow and made our solar energy future unstable.

solar energy

Challenges in India

Continuous solar panels importing has led India to-

Continuous solar import- Focusing on importing solar modules from China (in 2018 India spent $3.8 bn importing solar modules from China) is reducing demand for solar panel manufacturers in India, increasing forex outflow, introducing low-quality module usage, and dissolving job creation potential.

Frequent project cancellation- Government of India trying to reduce the solar tariff continuously is another issue that is halting the growth of solar power, as seen when solar projects standing at the cumulative capacity 3.9 GW was cancelled in 2018 by GUVNL, UPNEDA, SECI in a bid to drive down the tariff even lower.

Renegotiation of PPAs by state DISCOMS- A few states in India have started to re-negotiate the purchase rate, due to the continuous fall of solar tariff. Solar energy tariff in India fell from INR 12-10 in 2010-11 to INR 2.44 in 2018 (nearly 90% fall), which has led to scaring away investors by crunching their profit margin.

In the same line, we need to highlight that a few recent policies have dealt a damaging blow to the solar manufacturing industry.

For example, 25% safeguard duty on SEZ based manufacturing units, which by the way is the hub of solar manufacturing in India (40% of Solar panels and 60% of Solar Cells Manufacturing Units are in SEZ); have increased solar module production price and are pushing domestic manufacturers in India out of business. The duty has also brought the issue of job losses, as the demand for domestically manufactured modules and cells fall.

Additionally, Delays in refunding input tax credit under GST and differential GST rates (5% on solar panels and 12-18% on most other inputs) have increased solar project cost by 12-18% and produced hesitant solar developers by diminishing returns on investment.

Solar stands as a great opportunity for developing countries to phase out fossil fuel and its growing expenses while transforming the country with industrial, social, and economic growth. However, India needs to focus on manufacturing to reap that advantage. Otherwise, the country stands to spend more and more money, importing green energy components, allowing foreign suppliers to control India’s energy future.

solar power

Way Forward

The rising energy demand and prediction of the future can come out as a boon for India if the focus on solar panels manufacturing and solar energy adoption is intensified. The biggest challenge in front of India is to understand that manufacturing has to be its priority and not importing. Depending on imports, exposes Indian manufacturing industry to huge currency risk, introduces quality/performance issue of newly built solar plants, and scares away investors. Focusing on solar panels and cell manufacturing is the remedy to all owes in the Indian solar sector.

Currently, India and other developing countries have the advantage of using initiatives like International Solar Alliance (ISA) to utilize technology exchange, financial support, strategic support that can help in solar growth (renewable energy adoption). However, India must invest and focus in domestic manufacturing rather than importing. Becoming energy self-reliant, creating jobs, trade relations, and economic stability is the complete package that solar manufacturing can offer. But, the time is now to solve internal issues and invest in solar manufacturing to see the results.