Can PLI, coupled with BCD rejuvenate local manufacturing of solar cells and modules?

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  • Two ways towards renewable energy – Education and Domestic manufacturing
  • Strategic R&D in the field of solar to increase the efficiency of solar cells is important
  • The local manufacturing capacity of solar cells and modules needs to grow at 25%

PLI cannot induce growth without education

The performance-linked incentives (PLI) provided by the government to induce local manufacturing is a welcome scheme for the up-and-coming solar sector. India’s pledge in the Paris Climate Agreement, to install 40% of its electricity generation capacity from non-fossil fuels by 2030, is plausible in two ways. The first way is education about the importance of promoting solar energy and the second is the incubation of domestic manufacturing of solar cells and modules.

The Union Cabinet’s decision to award ‘performance linked incentive’ (PLI) to solar panel manufacturers is providing a boost to the domestic companies and the Indian solar scenario. According to Marcom India’s research, India’s solar installations achieved a milestone of 40GW. However, it is still a long way from the country’s ambitious target of 280 GW of solar installations by 2030 under the National Solar Mission.

Adani Green, Azure Power, Kolkata-based Vikram Solar, Mumbai-based Waaree Solar have emerged as the leading solar panel manufacturers in India
For achieving the target of 40% electricity generation from non-fossil fuel, India aimed at setting up  1,75,000  MW  of renewable energy capacity, including 1,00,000 MW of solar power, by 2022.

This humongous dream can only be achieved with strategic research and development in the field of solar to increase the efficiency of solar cells and increase the manufacturing capacity of the local players. Ajay Prakash Srivastava, the chancellor of Maharishi University said, “In the past six years, almost Rs. 4.7 trillion have been invested in renewable energy, but a very minute amount of it was actually used in research,” The educational institutions need to be empowered to invest time in more R&D. 

Strategic R&D to increase efficiency of solar cells as well as the production and supply chain

In the 2021-2022 budget, the government expects the inbuilt incentive for higher efficiency modules and local value addition,  to catalyze the successful manufacturers to invest in R&D for achieving more efficiency and source their input material locally for more PLI benefits. The universities have a pivotal role to play in regards to R&D. It is the universities, which need to be rejuvenated to assume an aggressive position in the development of solar energy in India.

Institutions like IIT Bombay, IIT Delhi, Dayalbagh Educational Institute, among others have invested in cutting-edge research studies in the field of solar energy. IIT Bombay, with its SoULS project, established a local/rural ecosystem of manufacturing and distribution of solar modules. IIT Delhi’s Centre for Energy Studies has done pioneering work on solar thermal technologies and Dayalbabh Educational Institute is working towards the implementation of the concept of solar agriculture farms. However, more technology revolutions fueled by research is needed, to launch India as a pioneer of the future global renewable energy ecosystem.

Can BCD thrust local solar cells and module manufacturing capacity?

Another area on which the public, as well as the private sector, needs to focus on is the increment of local manufacturing capacity of solar cells and modules. With the introduction of BCD (Basic Customs Duty) – 40% on solar modules and 25% on solar cells – it is apparent that the government plans to incentivize the local, efficient solar module manufacturers and restrict the solar cells and module imports by raising the customs duty.

The BCD covers all the countries, thus minimizes the scope for imports being routed from any country outside India. The plan, however welcoming in the long run, is currently met with some obstacles, the biggest being the disparity between the supply and demand of solar cells and modules. India Ratings and Research (Ind-Ra), a credit rating agency, said that the imposition of BCD on solar cells and modules to take effect from 1 April 2022, will lead to an increase in solar tariffs on account of a rise in the overall project costs. It would also result in a short-term reduction in the overall attractiveness of solar projects to off-takers and finally end-consumers.
As per Ind-Ra, the cost of imported solar modules (including transportation and hedging cost) without considering an SGD of 14.5% is lower than that of domestically manufactured solar modules by around 25%. However, considering that BCD would completely replace SGD, the cost of imported modules is likely to be 6% -8% higher than the current domestic module prices. Although the cost of modules manufactured using imported solar cells will likely be lower by 4% -5% than the current domestic module prices, as per Ind-Ra’s estimates. The current domestic cell/ module manufacturing capacity is an obstacle to completely meet the demand for solar capacity.

Domestic manufactures need to become competitive and increase their production capacity to reduce their cost against the imported modules and cells. Moreover, investments into the domestic manufacturing sector are needed. Vertical integration of cell and module manufacturing units in India coupled with increased capacity utilization will lead to economies of scale, thereby reducing the overall cost of manufacturing. 

The majority of the solar projects being set up under government schemes are reported to be utilizing domestically manufactured modules and cells. However, the domestic capacity will not be sufficient to achieve the targeted capacity of 25 GW every year. The BCD can be looked at as the government's tough love for the toddling sector. Either, the local manufacturing players find ways to increase their production rate and capacity, with the proactive focus on R&D and education or the goal of the solar capacity of 280 GW by 2030 falls on its knees. Major domestic equipment manufacturers in India along with new players have already announced their plans to increase their module and cell manufacturing capacity.

India has an installed module manufacturing capacity of around 10 GW and a cell manufacturing capacity of around 3 GW. With 100 percent utilization of existing installed capacity, in an optimistic scenario with a growth rate of 25%, India would be able to completely meet its demand for domestically manufactured solar modules and cells of 25 GW only in 2025 and 2030, respectively. Hence, the duty can prove to be an incentive to the industry in the long-run.

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