India Mulls New Subsidy For Solar Cell Makers To Boost Renewable Energy

The Ministry of New and Renewable Energy is working on subsidising solar cell makers over a year after the finance ministry rejected a similar plan.

The new scheme, according to an official of the renewable energy ministry, would help solar cell makers set up manufacturing plants. The ministry may also encourage the setting up of manufacturing chains that make ingots, wafers, cells and modules, the official said requesting anonymity. The talks are on with the finance ministry, the official said, while refusing to comment on why the earlier plan was rejected.

Prime Minister Narendra Modi’s government targets to boost installed solar power capacity by more than fivefold to 100 gigawatts by 2022. India imports roughly 90 percent of its solar panels from Malaysia and China, which according to Bloomberg New Energy Finance account for over half of a project’s total costs. Boosting local manufacturing can help India conserve valuable foreign exchange as it has spent over $6.4 billion importing solar photovoltaic cells since April 2018, according to data available with the commerce department.

In December 2017, India mooted boosting solar module manufacturing by providing Rs 11,000 crore direct support along with concessions to cut reliance on imports from China. The renewable energy ministry aimed to provide a 30 percent subsidy for setting up new plants and expanding existing ones, which was rejected by the finance ministry.

There’s already an M-SIPS (Modified Special Incentive Package) in which subsidy is provided if you start solar cell manufacturing in India, Jasmeet Khurana, manager of REmobility at World Business Council for Sustainable Development in India, told BloombergQuint over the phone. M-SIPS scheme was meant for electronic manufacturing in India, he said, adding that was why it curtailed a similar scheme for solar manufacturing.

BloombergQuint has emailed queries to the Ministry of New and Renewable Energy asking why the earlier plan was shelved. This report will be updated once it responds.

Subsidy will depend on the stage of manufacturing on parts like ingots, wafers, cells, among others, adding that the proposal, once approved by the finance ministry, will require cabinet’s consent, the official quoted above said. The renewable energy ministry will allow subsidy based on bidding, for various components or the entire chain in solar cell manufacturing, the official said. The government hopes Solar Energy Corporation of India Ltd. would plan auctions for setting up manufacturing plants.

Manufacturers can either import wafers or make modules or manufacturers can set up the entire chain, beginning from poly-silicon cells to modules, the official said, adding firms placing the lowest bids for capital subsidy will win.

Why Local Manufacturing Failed

High costs were an impediment to developing local manufacturing. Capital costs for an integrated manufacturing plant that makes everything from wafers to modules would be around Rs 4,400 crore per GW, Kameswara Rao, partner for energy, utilities and mining at PwC, told BloombergQuint via e-mail.

The industry has been seeking subsidy since 2016, said Ramesh Nair, chief executive officer of Adani Solar-Mundra Solar PV Ltd., told BloombergQuint. “There were manufacturers like Indo Solar, Moser Baer; the experience of manufacturing wasn’t good,” Nair said. “Moser Baer is in National Company Law Tribunal (for insolvency).”

Adani Solar, Nair said, has invested close to Rs 2,000 crore in Mundra, Gujarat, for a solar cell manufacturing unit.

The government, in a bid to boost local manufacturing, imposed a safeguard duty on solar cells imported from China and Malaysia for two years. A levy of 25 percent (ad valorem minus anti-dumping duty, if payable) was imposed for imports in the first year starting July 30, 2018, and 20 percent and 15 percent for two subsequent six-month periods, respectively.

The price of solar panels imported from China and Malaysia will be around 21-22 cents per watt currently and will have 20 percent safeguard duty, making its landing cost 25-26 cents per watt, Girish Kadam, vice president and power sector head of corporate ratings at ICRA Ltd., told BloombergQuint over the phone. Domestic firms, he said, lack economies of scale and that’s why they weren’t competent with imports.

“Safeguard duty will offer some respite to local manufacturers as their panels cost 10-15 percent more,” Kadam said. “That’s getting offset now.” Integrated original equipment makers, he said, will benefit from the safeguard duty.

‘Expected Subsidy For Long’

Domestic firms have benefited from the duty though it hasn’t generated much demand, Nair said, adding manufacturing pace is little weak today, barring a few players.

“We have 8 GW capacity on module side in India and cells capacity is less than 3 GW. With the new policy, it seems manufacturing is getting a boost like Kusum scheme,” he said, referring to a government scheme involving installation of grid-connected solar power plants of up to 2 MW capacity in rural areas. “Capital subsidy was a long-time demand.”

Nair also said that with wafers used in solar panels being primarily manufactured in China, India needs to develop alternate sources. “Some incentive on wafers (manufacturing) should be given.”

Rao said the pressure to localise solar manufacturing comes from states, where lower cost of generation is lost to the high cost of maintaining reliability and availability. “A domestic supply chain with reduced forex risk can reduce costs and gain more acceptability in a market where a large number of power users are recently connected and are highly price-sensitive.”