The existing 1,000 megawatts (MW) central public sector undertaking (CPSU) scheme under the National Solar Mission (NSM) has recently been extended by The Cabinet Committee on Economic Affairs (CCEA), raising the total approved capacity under the scheme 12 GW. Additionally, we need to highlight that CCEA’s INR 8,580 crore approval for viability gap funding to provide subsidy (70 lakh per MW) to solar power projects under the CPSU scheme, with mandates to use domestic cells and modules, stand as a great decision in favour of domestic solar panels manufacturing capacity enhancement.
However, this initiative has come at a time when the domestic solar energy equipment (mainly modules) manufacturers are facing challenges to survive due to influx of imported modules and internal policies like safeguard duty. These hurdles will ultimately limit the scheme from reaching its true potential.
Although, Government of India have been tireless in supporting Indian solar panels manufacturing sector, we must point out that India spent around $3.8 bn to import solar modules in FY 17-18, which showed a 15% year-on-year growth from previous fiscal. And although, there is nearly 48% fall in solar imports in FY 18-19 by the country, the reason can be traced as lower capacity additions and levy of safeguard duty, not rising demand for locally manufactured solar panels.
Data shows that out of nearly 35 GW of solar energy projects that were tendered in 2018, only 13 GW of projects were auctioned, which led to a 65% decline in tender activity in Q3 2018. In Q2 2018, Indian solar panels installation rate stood at 1.6 GW and in Q3 it even fell further to 1.5 GW, highlighting 30% y-o-y decline in solar power growth from 2017 to 2018. And imported modules continue to find favour, even with safeguard duty as their current selling price still remains cheaper (due to China’s cut in installation targets triggered oversupply in other markets) than domestically manufactured modules (imported modules were 8-10% cheaper than domestic products before safeguard), which by the way have become even more expensive due to paying safeguard duties.
In such a scenario, when cancellation of tenders and importing solar power equipment continues, domestic module makers are trying to serve the niche segments (off-grid, rooftop) while facing weak profitability. And the CPSU scheme can only be considered as a short term measure to brighten the landscape.
The Scheme Can Be of Help
The scheme, designed and implemented to protect and create demand for domestically manufactured solar equipment can serve the sector, but with a few policy alignments to support it.
Indian module manufacturing capacity is about 8 GW, which is capable to support and satisfy the demand of national solar power growth. Therefore, the country needs to focus towards using domestically manufactured solar modules rather than importing. For that to happen, Indian solar manufacturing industry have to be exempted from taxes and duties, to make domestic modules globally price competitive.
Additionally, CPSU scheme cannot be considered as an immediate relief provider to the domestic solar panels manufacturing industry, as even with immediate implementation of the scheme, it would have to go through a gestation period of at least a year to show real operational yields on the ground.
On the other hand, factoring in the structural issues such as- CPSU scheme being the sole source of demand, lack of fresh capital investments; measures have to be taken to improve existing situation in order to realize potential of CPSU scheme.
Structural support for provision for low-cost land and power, interest-cost subvention, central financial assistance to domestic manufacturing, and more funding to upgrade quality and technology can help create demand for domestically manufactured solar equipment.
Grid connected solar power projects under the scheme is expected to provide 60,000 jobs during construction phases and 18,000 full-time O&M jobs for next 25 years. Additionally, 120,000 jobs are expected to be created involving manufacturing roles, if only manufacturing sector is given priority.
In the same breathe we should point out that 48-50 GW of solar energy capacity additions are expected between fiscals 2019 and 2023. However, continuous importing will only result in lack of demand creation for domestic modules, which will lead to un-realization of the CPSU scheme. India is at the precipice of making a great change possible through adopting green energy. In such a situation, the country needs to prioritize its goals and bet big on solar power to unleash its full potential.