Solar manufacturing ambitions create yet more uncertainty

06 June 2021 |

The government’s Make in India policy is creating endless uncertainty for the solar sector. The Ministry of Commerce and Industry has initiated a new anti-dumping duty (ADD) investigation into solar cell and module imports from China, Thailand and Vietnam potentially dashing hopes of developers for a duty-free window between July 2021 and April 2022. Separately, MNRE has issued a small list of approved manufacturers under its Approved List of Models and Manufacturers (ALMM) policy. Only 21 Indian manufacturers with a total module manufacturing capacity of 8.2 GW have been approved so far. MNRE has refused to provide any clarity on when international suppliers may be approved.

Bizarrely, the anti-dumping investigation comes on behest of only one company, Jupiter Solar (cell capacity 450 MW), which is deemed to represent the entire Indian manufacturing industry. The other applicant, Mundra Solar (an Adani group company with cell and module manufacturing capacity of 1,200 MW), has been excluded from the investigation. There are other unusual aspects to the investigation. “Injury” has been determined to be caused to the “domestic industry” on spurious accounts – module sales by other countries at prices below cost of production and inability of the applicant to sell its production in the “open” market in India. But the applicant has used Indian cost of production as a proxy for cost of production in China (and other countries) ignoring vast differences in scale, technology and capabilities of manufacturers in the two countries. Similarly, the application ignores the fact that project developers prefer imports despite additional duty cost because of their superior technology and limited capacity of Indian manufacturers.

The ALMM policy is equally frustrating. MNRE has indicated that international suppliers may not be approved for another 12-18 months because of COVID-related delays. Delays in approval of more suppliers could massively restrict choice and result in inflated costs. While the policy document mandates projects with bid submission date after 10 April 2021 to use only those modules that have been approved as on the date of module invoice, SECI’s recent 1,785 MW Rajasthan solar tender stipulates that project must use only those modules that have been approved on the date of bid submission. It is impossible for developers to make proper procurement and bidding decisions in such an environment.

The government needs to be careful in walking the tightrope between support for domestic manufacturing and project capacity addition. Manufacturing policy uncertainty is beginning to unnerve investors, already struggling with project viability concerns arising from safeguard duty and the proposed basic customs duty.

PLI bid document at odds with the scheme
The Indian Renewable Energy Development Agency (IREDA) has released a bid document for the PLI scheme for domestic module manufacturing. As expected, bidders must ensure minimum backward integration into cell manufacturing, set up at least 1 GW production capacity and produce modules with efficiency greater than 19.5%. Successful bidders would be selected only on the basis of two criteria – extent of backward integration and production capacity (see table below) – through a bucket filling method rather than any competitive bidding as stated in the scheme document.

Figure: Selection criteria for PLI

Depending on module efficiency and temperature coefficient, actual PLI amount is proposed to be between INR 2.25-3.75/ W multiplied by local value addition. However, maximum capacity awarded to any bidder would be capped at 50% of respective bid capacity, or 2,000 MW, whichever is less. Brownfield projects would be eligible for only 50% incentive amounts.

Last date of bid submission is 30 June 2021. We suspect that the market response may be muted because of complex design, relatively small incentive and ambiguity in several provisions vis-à-vis scheme document issued in April 2021.

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