India may offer direct financial incentives to boost solar manufacturing

23 May 2016 |

In our last weekly update, we discussed the state of domestic manufacturing and Indian government’s efforts to improve prospects of the sector after the domestic content requirement mechanism was challenged successfully by the USA at the World Trade Organization (WTO) (refer). Recent reports suggest that the government is planning to offer incentives directly to domestic manufacturers instead of compulsory domestic content requirement (refer). The Indian government seems totally committed to support local manufacturing with Mr Piyush Goyal, Minister for new and renewable energy, being emphatic that India needs a vibrant manufacturing sector to go hand-in-hand with boost in solar power generation.

  • Existing manufacturers may not gain any direct benefit from the new policy, which is likely to focus on creating new, large scale and vertically integrated investments
  • Financial incentives and/or assured market demand may be provided using a bidding based mechanism
  • Long-term outlook for the sector will remain uncertain unless there is a genuine competitive advantage arising from lower costs, better infrastructure and/or access to superior technologies

No details of the new manufacturing policy are available at this stage but stock prices for existing manufacturers have already shot up in anticipation – see stock price charts of Websol Energy and Surana Solar. This rally may be unwarranted, however, as we believe that the incentives are likely to be available only for new, large scale manufacturing investments. Most of the existing manufacturers with small, uncompetitive capacities may not gain any direct benefit from the new policy. The prospects of market consolidation are also slim in our view because of obsolete and fragmented technologies being currently used.

We are curious to see how any incentive policy will be designed – apart from the usual questions of how much incentives will be provided to whom, the main challenge for the government will be to ensure that the new policy stays within the WTO framework. There have been unconfirmed reports that the incentives may be provided in the form of viability gap funding allocated through a bidding process. It is also possible that some business certainty in the form of assured market demand or project development preference is given to new manufacturers.

BRIDGE TO INDIA agrees that supporting investments into large scale, vertically integrated production lines is a better policy move than supporting existing manufacturers. But financial incentives and assured market demand can play only a limited role in creating a vibrant manufacturing sector. Long-term prospects for the sector will depend on ease of doing business in India, infrastructure availability and other business policies.


Recent reports

India Renewable Power CEO Survey | 2021

The India Renewable Power CEO Survey provides a glimpse into key trends of the industry that affect important management decision-making by business l...

Download

Wind solar hybrid projects   

India’s wind solar hybrid (WSH) project capacity is poised to grow from 310 MW at present to about 9,500 MW by 2025....

Buy Report Download Executive Summary

Bifacial modules: adoption prospects in India   

Improvement in bifacial technology, falling cost premium over monofacial modules and growing industry experience are finally leading to large scale ad...

Buy Report Download Executive Summary

India Solar Compass Q1 2021   

This report provides a detailed update of all sector trends and developments in the quarter –capacity addition, leading players, tender and policy a...

Buy Report Download Executive Summary

India Solar Rooftop Map | December 2020

India Solar Rooftop Map is an infographic report providing a snapshot of rooftop solar market in India - capacity addition across states and consumer ...

Download

India Solar Map | December 2020

India Solar Map 2020 is an infographic report that provides a state-wise break-up of utility scale solar commissioned and pipeline capacity. It also s...

Download
Award winnig research
We use cookies to offer you an optimal user experience and collect information on website usage.