Steep Tariff Fall Can Keep Solar Growth Hanging On a Cliff

India’s solar growth has become a shining example and an inspiration for developing countries to venture in solar. With Countries investing huge in renewable energy ($286 billion in 2016), a plethora of new opportunities are in line, ready to be claimed in the market. And Indian solar growth showing an impressive trajectory reaching 12 GW of on-grid solar capacity, testifying the country’s readiness for growth.

Indian Government has taken decisions bold enough to characterize itself as one of the biggest solar players capable enough to tackle even the dominant players in the industry. Policy support in guise of net metering, solar park development, viability gap funding, and initiatives like ‘Make in India’ and ‘Power for All’ have provided support and introduced new demand for Indian domestic manufacturers. Besides on-grid solar capacity enhancement, focus on rooftop solar growth has grown from 72 MW per year to 227 per year, raising awareness in the country.

Although, domestic manufacturers are manoeuvring through existing challenges in the sector, intensifying competition due to rapidly falling solar prices is becoming a cause for concern for the industry.

Falling Solar Tariff is an Issue

Government has welcomed the tariff fall and indicated it as a right way for solar sector to reach grid parity with cheapest conventional fossil fuel, coal. However, uncontrolled fall, without any indication of cost stabilization in future is not a good thing. Indian solar tariff has fallen from Rs 10.95 to Rs 12.76 per kWh in 2020-11 to INR 2.62/per unit in 2017 (near about 90 per cent fall). Even the current solar tariff is a 17 per cent decline from the previous month.

Decreasing solar tariff is making solar projects financially unviable, by shrinking down the ROI generation. This is scaring off investors and putting Indian solar growth on an unstable ground. Although, Indian Government has identified the tariff drop as a forward step towards making ‘Power for All’ a reality. However, with instability in the sector and future of the projects not secured (due to financial unavailability and investors hesitation), it is hard to see how we would be able to build an energy rich future for India.

Existing Challenges Surfacing in a Serious Manner

Indian solar manufacturing sector is already in an unfair fight against Chinese module suppliers who are practically dumping solar modules at a lower cost (Chinese modules cost $0.33-$0.36 cents/per Watt p, while Indian modules are priced at $0.35-$0.40 cents/per Watt p). Powered by industrial scale and Government backing, Chinese module suppliers are easily claiming larger market share in Indian solar market, than domestic players (8 out of 10 module suppliers in India are Chinese).

Besides foreign cheap modules eating up the demand,

Decreasing DCR category projects (under NSM Phase-II Batch-4, when only 25 MW was given to DCR from 225 capacity tendered).

Lack of financing (only Rs12,427 crore was added to renewable energy, from Rs54,336 crore cess in 31st March 2017).

And lack of having a policy framework that supports domestic manufacturing are piling up huge hurdles in front of Indian solar vision.

As the solar energy tariff continues to fall, there is a chance that Indian solar industry could lose investment options. Losing foreign investment at this nascent age can choke the industry and squeeze out the opportunities at hand. Besides that, there is also the question of existence of domestic manufacturers, as shrinking opportunities due to competition with cheaper Chinese modules is creating quite the stir in the industry.

To Remedy the Situation

To stabilize the situation and move forward towards the path envisioned, Government needs to freeze the solar tariff at the stage it is now. Giving a few breathing moments to the industry and supporting it to grow, will certainly bring comprehensive energy growth in the country. It will keep the existing investors interested and bring in new investment supporting growth.

Focus on domestic manufacturing and establishing control on foreign module imports is also important. Statistics prove that India can save up to $40 billion within 2030, by stopping solar imports. That money could be used in industrial and infrastructural development changing lives within the country. Imposing anti-dumping on foreign modules will also create demand for domestic manufacturers and assure quality control over renewable energy future.

Global solar sector is going through revolutionary shifts and new changes are coming with opportunities and often creating vacuums to be filled. If India wants to become a solar super power in the future, then the country has to make right decisions quickly, before opportunities fade away.

 

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