While the global demand for solar energy is increasing, the solar industry in India is facing difficulties. In order to get rid of this solar (industry) eclipse in the country, priority should be given to research.
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Security tax has been levied on solar panels imported into India. This security tax is one of the major reasons for the slowdown in India's light sector growth in 2018. In fact, the main purpose of imposing this tax was to boost the domestic production of solar panels. However, this led to an increase in the price of solar panels and as a result many auctions related to solar panels were canceled, leading to the re-inviting of many tenders. Of course, this recession may be temporary. This is because the prices of PV modules (solar power sets) required for solar power generation are steadily declining.
Importantly, the increase in India's solar power capacity has been made possible by imported PV modules to date. About 90% of the total PV modules we have are foreign. This is due to the fact that imported PV modules are usually 30 per cent cheaper. In particular, India has imposed a security tax of 70 per cent on foreign modules. However, pressure from energy companies increased and the government later raised the tax to 25 per cent.
The Solar Energy Corporation of India (SECI), an initiative of India's Ministry of New and Renewable Energy, had in May 2018 invited tenders for a 10 gigawatt capacity solar power plant. The project was proposed to generate 5 gigawatts of energy locally annually. This project and the related tender process was an attempt to promote Indian producers. However, there was little response to the tender process from the energy sector. As a result, the deadline for inviting tenders had to be continuously postponed. Going forward, the tender also reduced the power generation capacity to 3 gigawatts. In addition, under the tender, a guarantee agreement for at least 2 gigawatts of power would be signed with the builders of 600 MW power generation projects. Thus, a total of 10 gigawatt capacity project was to be set up under this project.
In January 2019, however, the government announced the cancellation of the old tender process. It also announced the launch of a new tender process for the solar power generation industry. Accordingly, the Solar Energy Corporation of India has launched a new tender process for a project with a capacity of at least 1.5 GW to generate a network of 3 GW solar power generation projects. Accordingly, the minimum bid for 500 MW solar power generation will be 1000 MW solar power capacity. The principle of this tender process is 'Build and execute the project as you own it'. Under this, Solar Energy Corporation of India will sign a public-private partnership agreement for 25 years. Apart from that, a maximum rate of Rs 2.75 per unit will be paid. Even this tender is getting very little response. Given this, the tender process is likely to be canceled.
There have been several discussions and interactions between the government and representatives of the solar energy industry regarding this entire structure. But project developers are skeptical and apprehensive about participating in the manufacturing business. Determining the kind of rate structure that will be acceptable to both sides is going to be difficult for the government and the entrepreneurs. In fact, things are happening that will confuse the Indian economy. Rupee depreciation, rising interest rates, constantly changing goods and services tax (GST) are some of the similar developments. The purchase rate is also determined by this situation. However, the solar energy industry is of the view that there is not much opportunity to make a profit. That is why they do not find this auction process commercially convenient.
Seen beyond this, the solar manufacturing industry sector faces a major challenge of constantly and rapidly changing technology. Against this backdrop, the two-year commitment expected from the government, as stated in the latest tender process of the Solar Energy Corporation of India, seems very ambitious.
The Indian solar manufacturing industry is expected to take at least five years to match the potential of China's industry. Chinese manufacturers have received rigorous training on how to mass-produce spare parts for PV modules. On the other hand, the prices of PV modules are also declining rapidly. If this situation continues, the amount of solar energy products imported from China will increase significantly in the next few years. The solar manufacturing sector in India fears that Indian products will no longer be sustainable.
The government's view is that project developers in India should also enter the solar manufacturing industry. However, many experts are of the opinion that this approach of the government is not beneficial considering the future. The actual cost of any project is higher than the cost of borrowing. So, the project construction process requires a larger amount of credit than the capital cost. In such a situation, if the government wants to act according to the idea, then how will the financial planning be done accordingly?
In the meantime, we have to think about a big event in February 2019. The Cabinet Committee on Economic Affairs has approved a Rs 8,580 crore 'Viability Gap Funding' scheme to fill the funding gap. This will enable state-owned companies to build 12 MW of solar power projects in the next four years using modules made in India, which are actually expensive. The government expects to invest about Rs 48,000 crore under this scheme and create about 2 lakh jobs. So, on the other hand, given the fact that many of the manufacturing projects in India are using outdated technology, the entire funding provided under this scheme is more likely to be used in an unplanned manner. Of course, whether the plan is approved by the World Trade Organization is also an important question. India was defeated in a World Trade Organization (WTO) lawsuit against India over its domestic content requirement (DCR) rule. Of course, it is important to see what effect this has had on India's policies.
Considering the power generation capacity, India can currently produce 3 gigawatt capacity cell and 9 gigawatt light module. Of these, only 1.5 gigawatts and 3 gigawatts are in actual use. If all these projects are to be successful under 'Make in India', or if they want to survive in the competition, then the technology used in these projects needs to be updated immediately. But at the same time, it should be borne in mind that manufacturers of photovoltaic modules in China are cutting rates. And if this situation persists, the measures that India has taken to impose a security tax on import modules to make Indian producers feel safe may also fail. China had cut solar power growth in mid-2018. That's why Chinese solar panel manufacturers have reduced module prices by about 35 percent. As a result, there is no longer a favorable situation for Indian producers to run their projects at full capacity.
If the rate of supply of solar panels locally is high, then there is some guarantee that the panel manufacturers will get the modules at a fixed price. The main reason for this is that there are few factors that can fluctuate prices or currencies locally. Therefore, buyers and sellers do not face any problem like having to make some special arrangements for import. In addition, the government has introduced a 'viability gap funding' scheme for public sector producers to ensure that the market is available for four years. This will definitely help in boosting the confidence of Indian producers to face future challenges.
Under a special scheme introduced by the government to promote the establishment of industries, namely the 'Modified Special Incentive Package', entrepreneurs in the solar manufacturing industry get a 25 per cent discount on capital. Yet entrepreneurs in the local solar power generation sector have not invested. Indian manufacturers are still using outdated technology. In fact, research should be done to change this situation and create a modern, well-equipped production center. And such research should be a priority investment. Many entrepreneurs prefer to anticipate the situation directly before making a large investment. For this, they initially focus on gaining experience by setting up small projects. Debt is an important factor in this process.
China and Japan have much lower interest rates on loans than India. In short, high interest rates in India are a major obstacle to investing in India. In fact, India should study the successful policies pursued by China and learn some lessons from it. China's policies focus on the use of new technologies and capacity building rather than cost. In India, however, the emphasis is on how to keep rates low.
Manufacturers will have a difficult responsibility to harmonize the current value-added chain of PV modules when manufacturing solar energy products. Therefore, in a sense, starting the process of manufacturing solar energy products is not a simple task for project developers. The process of manufacturing a PV module involves several tasks at once and in sequence.
The PV module is made by first processing the sand to make silicone, making silicon bricks or molds, making pads from it, making electric cells using these pads and then finally joining all the spare parts together. Currently, companies in the PV module manufacturing industry in India only manufacture power reduction cells and modules. Other than that, another manufacturer may be producing discs with exceptions. To develop a perfect manufacturing plant (from silicon to module manufacturing) as a hub for many solar power generation projects in India, it requires huge capital expenditure, as well as smooth power supply and abundant water supply. In order to create such an industry, it is necessary to implement an incentive policy like tax exemption. Only then can investors be attracted to these industries. Many Chinese giants are still evaluating India's solar industry. Because they also have doubts about whether such projects will survive the financial test.
If the local solar manufacturing business in India is to get a boost, the government must work beyond precautionary measures such as security taxes. The government should focus on making arrangements that will complement the growth of these industries. This requires the provision of necessary infrastructure and proper implementation of incentive schemes. We have SEZs with a special emphasis on integrated production patterns under special economic zones. In view of this, a plan should be considered under the SEZ to create favorable conditions for the solar industry. It may take at least two years for the land and other infrastructure to be erected for production. The government should also take this period into consideration while planning any time bound plan for the solar industry. At the same time, India should focus on gradually adopting new technologies in the solar industry, as well as producing high-capacity panels. Only if we can do this will it be possible to balance the actual cost of setting up the projects and the arrangements that will be made. If we can make strategic plans keeping in view the definite goals and objectives, then it will certainly be possible to build a sound system of solar production sector in the country.
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