Confusion regarding safeguard duty on SEZ based solar panel manufacturers, lack of efficient solar energy transmission infrastructure, ambiguity over GST rate, falling tariffs are leading to diminished marginal returns for investors engaged in funding solar energy projects. And this is slowing down solar energy growth within India, even though solar power solution has been championed as the best suitable replacement for fossil fuel. On Sept 19th, Mr. R. K. Singh held a meeting with stakeholders, addressing and trying to find ways to get out of the issues.
Growth Is In Sight but Funding Is Needed
With consistent growth, India is estimated to become fifth largest manufacturing country in the world by the end of 2020. And since solar has proven to be the most lucrative sector now, it is easy to understand that manufacturing solar panels would help India improve its industrial infrastructure, solve its energy crisis, create jobs and bring on socio-economic reform. And although, the Government has installed a 71 GW capacity in renewable energy (out of it only ~22 GW is solar), we need to understand that 104 GW capacity is yet to be installed, from which 78 GW is expected to come from solar within nearly next 4 years. Therefore, it is apparent that more investment is needed to complete this task. Surveys show that nearly $100 billion would be required to fund the growth of solar energy in India. We should factor in that currently, around 293 global and domestic companies have committed to invest approximately US$ 310–350 billion to set up a cumulative capacity of 266 GW (in solar, wind, mini-hydel and biomass-based power) within 5–10 years. Also between April 2000 and September 2017, the industry attracted US$ 12.3 billion in Foreign Direct Investment (FDI). Considering this, we can glean that Indian solar energy industry has become a lucrative market to attract funding. However, internal issues are scaring away investors and recent surveys indicating 65% fall in corporate funding within solar industry from Q4 2017 to Q1 2018, threatens to put constraints on solar energy system growth in India.
In such a scenario, the necessity of keeping investors happy is absolute, as most of the funding for renewable energy comes from foreign investors.
Issues in The Equation
It is important to highlight that Public sector banks are showing lack of interest in funding solar energy projects in India, due to the constantly falling tariffs, which can delay banks to recover their investment. Also, there is no pressure for credit growth which is keeping banks reluctant to shoulder this responsibility. Such scenarios are leading to slow growth of solar energy in India and is suspected to push the lenders to ask for differential rates of lending depending on the ratings of the companies. The situation is suspected to become even more complex as MNRE recently capped solar tariffs at Rs 2.5 per unit. Although, Government of India has always welcomed fall in solar tariff and indicated it- as a rapid move towards matching coal powered electricity tariff. However, continuous tariff fall aided by cheap solar module imports is actually scaring away investors, leading to rise in PPA re-negotiations, making projects un-reliable, and pushing domestic manufacturers out of the market.
Uncertainties are given rise by Government of India’s 25% safeguard duty imposition on SEZ based solar cell and solar panel manufacturers. India’s 40% of Solar Panel Manufacturers and 60% of Solar Cells Manufacturing Units are located in SEZs. So, it is fair to state that this safeguard duty will dismantle Indian solar panel manufacturing industry and make India more dependent on foreign suppliers, thus adding fuel to the fire that is currently affecting the domestic industry.
India quickly needs to take care of above discussed issues as they are delaying solar energy projects, in some instances making them unviable, and reducing investor’s interest. Indian solar sector has shown incredible progress, powered by Government policies and initiatives. This progress has helped the country secure prominence as an investment magnet. However, to maintain such position, India has to prioritize solar power industry and solve internal issues by focusing and strengthening its domestic manufacturing scale. It will increase investor confidence, and build the India we have envisioned.