Category: Solar Manufacturing

With an eye on China, the government has now set its focus on enhancing India’s self-reliance through building an expansive manufacturing base of ‘Made in India’ products. But what does it mean for the domestic manufacturing industry that’s still struggling to adopt latest innovations that minimize cost and optimize output?

So far, India’s approach to protect its fledgling solar industry has been the imposition of protectionist measures and capital subsidies. Being extremely-price sensitive, the Indian market has been a slow participant in the race of adopting latest technological innovations.

Technological innovations primarily revolve around attaining higher power generation and efficiency. China, which occupies the lion’s share in the global solar supply chain, has made impressive strides in technological innovations. With significant efforts in R&D, big players in China have been able to achieve cell efficiencies as high as 24%. In contrast, efficiency of cells made in India is typically around 17-18%. In 2019, LONGi invested CNY 1.677 billion (USD 242.5 million) in R&D, accounting for 5.1% of its total revenue. 

With ongoing innovations, and rapidly evolving cell and wafer sizes, many smaller suppliers find themselves in a fix as older production lines cannot accommodate these changes and upgrading production lines is a highly capital-intensive exercise in itself. Rapid technological innovations, therefore, also mean consolidation of the market by a few bigger players.

Figure: Cell capacity trend by size, GW and mm

Source: PV Infolink

The latest technologies making the buzz in the solar industry currently include, bifacial, half-cut, and mono-crystalline PERC modules. By 2025-30, the market is expected to embrace newer technologies like heterojunction, interdigitated back contact (IBC), and Topcon.

In India, majority of solar cell manufacturers are still producing multi-crystalline cells. Only a few suppliers in the Indian market are currently producing the latest technologies like half-cut and bifacial cells which are going to see a higher demand in the future.

There are multiple implications of module technology innovation on project developers and module manufacturers. In our upcoming webinar, we will discuss the latest technological innovations and their implications on project economics with a focus on the Indian market. You can register for the webinar here.

It is nearly a year since announcement of safeguard duty on import of PV cells and modules. To recap, the Indian government enforced duties on all imports from China, Malaysia and all developed countries starting 31 July 2018 for a period of two years. The duty level was set at 25% in the first year, falling to 20% and then 15% in the subsequent six-month periods.

The safeguard duty has failed to support domestic manufacturing because of the very short implementation period and promise of ‘change in law’ compensation to developers;

India continues to rely heavily on imports for meeting its demand;

Prospects of domestic manufacturing appear bleak as in the absence of a cogent plan, the government seems to be following a trial and error approach;

With all previous measures including capital subsidies and DCR (domestic content requirement) having failed, the safeguard duty was expected to be a key policy support measure for domestic manufacturing. But as we predicted at the time, the implementation period of two years is too short to attract new manufacturing investments. Even the existing manufacturers have failed to derive any meaningful benefit. Some project developers have been offered ‘change in law’ compensation, where provided in the PPA, and have therefore continued to rely on imports. Others have routed imports from exempt countries including Thailand and Vietnam. Share of imported modules in utility scale solar still hovers around 90% mark, consistent with the preceding years. Meanwhile, some of the larger domestic manufacturers have failed to capitalise on the duty because being located in SEZs (special economic zones), they are liable to pay duties in the same way as manufacturers outside India.

Going forward, the duty rate is set to fall to zero by 31 July 2020. Developers have already been assuming no duty payment for ongoing auctions as they get 18 months to build projects.

The only market where domestic manufacturers have enjoyed some success is small private rooftop and open access solar installations. Not being eligible for any ‘change in law’ compensation, such customers have been a little more willing to purchase domestically. The larger developers and contractors prefer imports despite higher cost because of concerns about quality of domestic modules.

In a nutshell, therefore, the safeguard duty has barely made any difference to the fortunes of domestic manufacturing. Most of the cell manufacturers have indeed shut down and the module manufacturers are operating at low capacity utilisation and/ or betting on exports. We believe that the domestic manufacturers would file another petition shortly for further duties.

Meanwhile, the Indian government seems to be pushing through a mix of curiously devised schemes – 12 GW PSU scheme, a new 6 GW manufacturing-linked tender, and 36 GW distributed solar schemes for rooftop and rural solar. Having committed so much to domestic manufacturing, the government risks losing credibility if it cannot produce quick results.

After occupying a dominant position in module supply, the Chinese companies are aggressively expanding their presence in the Indian solar inverter market. Their combined market share in utility scale projects in the latest available 12-month period has gone up to 46% from 1% just three years ago. 3 of the top 5 players are from China. There is a similar story in rooftop solar with aggregate Chinese market share jumping to 43% from nil just three years ago.

In the hyper price-sensitive Indian market, the Chinese players have been able to gain market share by offering lower prices;

Growing Indian volumes have led the larger Chinese inverter companies to look at India as a key strategic market and an export hub for other markets;

The European and Japanese players are pushing back with more local sourcing and innovative technology, and won’t be pushovers unlike their module manufacturing counterparts;

In 2015, Huawei became the first Chinese inverter company to enter India. It successfully offered a unique concept – string inverters in utility scale projects – at an aggressive price point and grew rapidly. That has drawn in Sungrow, TBEA and many other smaller players including Growatt, Solis, GoodWe, K-Star and Sineng.

Figure: Market share for solar inverters in India

Source: BRIDGE TO INDIA researchNote: Data is shown for a 12-month period from October 2017-September 2018.

The Chinese are formidable competitors with extensive product ranges, nationwide sales and service networks and, of course, aggressive price points. In the hyper-competitive Indian market, where reducing cost remains number one priority for most developers and customers, the Chinese players have been able to offer the right product at the right price. Partly as a result of that, inverter prices in India have fallen steadily in the last 18 months despite large Rupee depreciation – from about INR 1.80/W to 1.60/W at present for central inverters and from about INR 2.75/W to 2.40/W at present for string inverters (prices given are on CIF basis).

We believe that the Chinese companies will likely make further gains in the market particularly in rooftop solar. Sungrow has already set up an Indian assembly plant. TBEA, Huawei and some others are also looking at India as a key strategic market and looking to set up local manufacturing facilities.

But the European and Japanese players won’t be pushovers unlike their module manufacturing counterparts. They are also expanding their product offerings and most of them (ABB, Hitachi, TMEIC, Siemens) have established supply chains in India. They should be able to compete evenly both on technical and commercial aspects.

In his Independence Day speech on the 15th of August, Prime Minister Narendra Modi invited Indian and international companies to come to India to manufacture, or in his words “make in India”. A decision on anti-dumping duties (ADD) is due this Friday (22nd August). On the face of it, it might seem that ADD supports “make in India”, however, this is a fallacy. In reality, ADD will hamper manufacturing of solar cells, modules, inverters and other Balance of System (BOS) components in India because it will set back the market as a whole.

The prime driver for solar manufacturing in India is the domestic market size

The imposition of ADD will shrink the market size by over 67% in the next year

In order to encourage domestic manufacturing the focus should be on reducing, not increasing the cost of solar in India

Indian cells and modules manufacturing requires investments in scaling up to become globally competitive. The predicted growth and size of the domestic market would be the prime driver of investment in solar cells and modules manufacturing. In 2013, India was ranked 12th globally in terms of cumulative installed capacity. The installed base is significantly smaller than in Germany, China, Japan and USA.

Figure 1: Cumulative installed solar capacity by 2013[1]

According to BRIDGE TO INDIA’s estimates, an imposition of ADD will result in an increase in the cost of solar power by about 10%, making many projects unviable. As a result, India would only add around 500 MW in the coming year. This is a reduction by over 67%.[2] Such shrinking of the market will have an adverse long-term impact not only on cells manufacturing but also on modules, inverters and other BOS manufacturing.

Large global inverter manufacturers such as ABB, Bonfiglioli, Advanced Energy (erstwhile Refusol) and TMIEC (erstwhile AEG) have decided to manufacture in India without any protectionist measures or incentives. These manufacturing capacities have been set up due to a belief in the strong market growth in India. A policy measure in the form of ADD will affect these investments in India and hamper investor confidence. This is just one example of how protectionism derails the “make in India” proposition.

The levying of ADD is not the answer to the inherent problems of domestic solar cells and modules manufacturers. Instead, domestic cells and modules manufacturing should be supported by incentivizing them directly based on a sound long-term business plan, and by providing clarity on the future demand through policy stability. The government should focus on measures that reduce the cost of solar power in India. This would bring all interests in the market into alignment and help the market grow. Incentives could include- making available low cost power and land without encumbrances, providing a rebate on excise and customs duties or providing cheap loans.

[1] Source: PVPS Report Snapshot of Global PV 1992-2013, http://bit.ly/1fwoM3s

[2] Refer to our India Solar Compass July 2014 edition, http://bit.ly/1hLVfRD

Mudit Jain is a consultant at BRIDGE TO INDIA

By tomorrow, Friday, August 22nd, the Indian Ministry of Finance will notify its decision on anti-dumping duties (ADD) on solar cells and modules. If the duties are imposed as suggested by the Ministry of Finance, they will have a highly disruptive effect on the Indian solar market. Employment in this sector is likely to suffer a major setback, as significant number of jobs would be lost downstream (EPC, installation, project development, maintenance), as compared to the figures that would be protected upstream in the fairly automated manufacturing processes. Given that job creation is a measurement index for the growth of Indian economy, this is worth considering.

By a rough estimate, solar sector creates around 10-11 jobs per MW of installed capacity

A reduction in installed capacity through ADD by around 20% would reduce solar jobs by ca. 23,000

Many more jobs are created in installation than in manufacturing

According to the International Renewable Energy Agency (IRENA) 13,60,000 jobs were created globally in the solar PV industry by April 2014. This is based on a cumulative installed capacity of 136 GW. In the US, according to the National Solar Jobs Census, a total of 1,42,000 jobs have been created for an installed capacity of 12 GW, in the past. Therefore, by a rough estimate, around 10-11 jobs are created per MW of installed solar PV capacity. If we look at the Indian market, for an installed capacity of 2.7 GW, this would indicate a contractual and part time employment figure of around 27,000 people. The number is probably conservative, since the construction and maintenance processes in India are typically more labor intensive than in developed economies.

Before ADD appeared on the radar screen, BRIDGE TO INDIA predicted that India’s grid connected solar market would reach 4.3 GW by mid-2015. With the prospect of ADD, however, we have revised this figure downwards to 3.2 GW. This means that even if there is no net loss of jobs per MW, due to the imposition of duties, opportunity for around 11,000 jobs would be scuttled. Now given that 27,000 jobs were supporting a capacity addition of around 1 GW per year for the past two years, a reduced growth of just about 500 MW over the next one year, as predicted by BRIDGE TO INDIA [read more in our India Solar Compass, July 2014 edition], would additionally result in the loss of existing jobs.

We estimate that a capacity of 1,050 MW, for which PPAs have already been signed, is likely to be scrapped or significantly delayed. Going forward, several states might want to revise their capacity addition targets downwards. Also, parity driven capacity additions, both rooftop and ground mounted, were expected to be major contributors for future growth. With the imposition of duties, this market will suffer a set-back for at least a couple of years.

According to BRIDGE TO INDIA’s estimates, the Indian solar market would have grown to a cumulative capacity of about 16.5 GW by 2018. This means that around 1,65,000 solar jobs would have been created in the country by 2018. On an average, around 30,000 jobs would have been created every year for the next four and a half years. But, if we assume that the 16.5 GW number by 2018 would be revised downwards by around 20% to 13.2 GW, due to the imposition of ADD, that would lead to a shortfall of around 23,000 jobs. In comparison, manufacturing facilities with 1 GW of module manufacturing capacity per year create only about 500 jobs.

Jasmeet Khurana is a Consultant at BRIDGE TO INDIA.

In the budget, presented last week, the new government took further measures to support solar manufacturing by eliminating the ‘inverted duty’ structure. ‘Inverted duty’ meant that while there was an import duty exemption on finished solar modules, there was no similar exemption on raw materials and components used in module assembly, thus putting Indian manufacturers at a disadvantage vs. exporters to India. This includes, for example, EVA sheets, back sheets and ribbons. Removing this bias is sound.

A sound business strategy for creating a healthy domestic manufacturing industry in India is missing

BRIDGE TO INDIA believes that India does not need to have its own solar cell and module manufacturing industry, if it is much cheaper to buy from abroad

If India needs to have a domestic solar cell and module manufacturing industry, then two key pieces need to be kept in mind: Strong solar demand and a long-term vision

We welcome the elimination also because it supports manufacturing in India in a way that helps solar as a whole to grow, by reducing the end consumer cost of solar power. However, while there are fragments of policy support – some positive and some negative, a larger strategy for creating a healthy domestic manufacturing industry in India is still absent. Other fragments are: domestic content requirements, a potential anti-dumping duty and the SIPA manufacturing policy.

A closer look shows that they are not in tune – some help manufacturers, but throttle the market by imposing higher solar costs. They grow the fish by shrinking the pond – a very short-sighted approach. Also, as a whole, they do not come together in a comprehensive strategy for India. There is too much short-termism in the industry and in politics. The government reacts to industry demands for protection and industry bets on being protected by the government, rather than on a sound business strategy.

The anti-dumping duties are a case in point. The Prime Minister’s Office (PMO) is thought to believe that this will help establish domestic manufacturing. However, this would only be true, if two conditions are met: firstly, that it is a useful intermediate step to making Indian manufacturing globally competitive without government help at some point in the future. Secondly, that the short term hurt to the market as a whole will not derail the entire Indian solar story. We have strong doubts on both accounts.

At BRIDGE TO INDIA, we do not see why India needs to have its own solar cell and module manufacturing industry, if it is much cheaper to buy from abroad. Over the last 20 years, India has grown its economy significantly by dropping the long-held notion that it needs to achieve autarky for all products and services. India has warmed to the idea of international trade and benefitted from it. Cells and modules are fairly low margin, highly commodified components of the value chain. China, the US and Taiwan have already built a significant manufacturing base in these – and at some subsidy expense. India can benefit from these efforts by buying cheap and instead focus on other components of the smart, distributed, clean energy future, such as meters, transmission and distribution solutions, inverters or storage solutions. In other industries, India does not mind importing from abroad. What makes solar cells and modules so special?

However, let us put this assessment aside and, for the sake of the argument, assume that it is necessary for India to have a domestic solar cell and module manufacturing industry. How could that best be achieved? We think, it needs two key pieces: Strong solar demand and a long-term vision. Without these, it will be difficult to entice investors and banks to place their bets on India. On the first point: India’s solar demand is stable at a low level, compared to the country’s potential. Unlocking its potential depends crucially on a low and falling cost of solar power. India is on the cusp of achieving significant solar parity with grid electricity on the consumer side, followed soon by parity on the generation side (for example, with new coal-fired power plants). Once this is achieved, India is bound to become one of the largest solar markets globally (in this prediction, we are not alone: the IEA thinks India will overtake China as the largest market by 2025). Once India is a thriving market, manufacturing in India will be easy to encourage. A look at the car market is instructive. Most global players as well as leading Indian companies have set up large factories in the country. However, measures such as duties or domestic content requirements raise the cost of solar and weaken demand.

On the second point: If India wants to have a competitive manufacturing industry, it needs both scale and vertical integration. Manufacturing sites need to be larger by a factor of 5 to 10. For that, they again need a market. This can be done in India (if demand is not throttled) or abroad (if other countries don’t place the same trade restrictions on Indian manufacturers as India places on them). It is also important to be vertically integrated all the way through to the silicon, ingots and wafers. Here, the cost of electricity – which is high for industry in India –  plays a key role. If the government wants domestic manufacturing to thrive, it needs a strategy to achieve both scale and integration. This would require a significant, long-term commitment by the government with very large subsidies. Success would by no means be guaranteed. Other countries have lost too much money in supporting solar companies.

Jasmeet Khurana is a consultant at BRIDGE TO INDIA.

Worldwide manufacturing capacity of PV cells has grown over four fold since 2009. Most of this new manufacturing capacity has come up in China. The global module manufacturing industry is heavily driven by large production capacities that have been developed in China. Allegedly, Chinese equipment makers get free power for manufacturing, free land, incentives for exports and cheap capital.

This has prompted local industry in many countries to seek protectionist measures against cheap Chinese imports. US manufacturing industry has taken concrete measures to seek anti-dumping duty against Chinese imports

These protectionist measures were likely to have a positive impact on the Indian market

However, Indian manufacturers also applied for anti-dumping protection against China and other countries. BRIDGE TO INDIA believes this protectionism will not help improve the market for Indian manufacturers

Even though solar installations across the world are growing, the addition in manufacturing capacity has grown faster, creating an oversupply. In a highly competitive and oversupplied market, the Chinese manufacturers, who work on economies of scale and get government support, have been able to cut costs at a pace that manufacturers across the world, including India, have not been able to do. This has prompted manufacturers in various countries to call for protectionist measures. As a short term measure, the US recently imposed anti-dumping duties on Chinese PV cells. (Refer to BRIDGE TO INDIA’s earlier blog titled “US-China solar trade war to have a positive impact on India” to read more on that subject)

Now, Indian manufacturers have called for a similar measure. They have gone a step ahead and asked for anti-dumping duty on module imports from Taiwan, Malaysia and the US as well. The manufacturing capacities of multiple Chinese companies like LDK, Suntech and Trina Solar are as high as 2GW per year as compared to the 215MW manufacturing capacity of Moser Baer, which is the highest in India. In today’s date and time it can be assumed that a capacity below 350MW-500MW is not competitive for mass market sales. Protectionism at this stage will not really help anyone, it will only be a hindrance to reducing the cost of solar power in the country. If they can, Indian manufacturers need to think of scaling up manufacturing capacities to be competitive. Keeping this in mind, the government should also think of providing support through manufacturing incentives to scale up manufacturing capacities rather than adopting protectionist measures.