Trade protection for domestic manufacturers is misguided

28 February 2018 |

While the solar industry anxiously awaits the safeguard duty decision, we have examined the rationale of policies favouring domestic manufacturing in a recent study. We have assessed the complete solar value chain – from manufacturing to project construction and operations – and evaluated each activity for employment and value creation to understand their overall impact on the economy.

Solar value chain can be broadly divided into upstream and downstream activities. The upstream activities comprise manufacturing of solar cells, modules, inverters and balance of system and downstream activities comprise project development, engineering, construction and operations. Our findings suggest that module manufacturing contributes a relatively minuscule amount of total economic benefit from solar sector:

  • 80% of total job creation in solar sector comes from downstream activities;
  • 87% of total value creation in solar sector comes from downstream activities;
  • Even within upstream activities, majority of job and value creation comes from manufacturing of balance of system components;

As part of the study, we have collected employment and cost data directly from various domestic and international manufacturers, EPC companies and project developers. We found that a 1,000 MW cell and module manufacturing line creates only 1,220 jobs. In contrast, manufacturing of inverters and various balance of system components for the same capacity creates almost 3x as many jobs. But bulk of job creation comes from project construction and operations.

Extrapolating these numbers, 10 GW of new solar capacity addition in a year – split 80% utility scale and 20% rooftop solar – creates 66,300 full time jobs in year 1, rising to 316,860 by year 25. The proportion of total jobs created in module manufacturing, inverter and BOS manufacturing, project development and construction and operation is 4%, 10%, 5% and 81% respectively over complete life-cycle of the projects. 

Figure: Job and value creation for 10 GW solar capacity addition

Source: BRIDGE TO INDIA research

We have similarly estimated economic value creation, value of final finished goods less direct cost of key inputs, from each upstream and downstream activity. 10 GW of solar project capacity creates INR 5,42 billion (USD 8.4 billion) of total economic value, split between module manufacturing, inverter and BOS manufacturing, power generation as 10%, 3% and 87% respectively.

The analysis is conclusive – majority of job and value creation in solar sector comes from project development and power generation. Given the critical contribution of solar power to the Indian economy, the government needs to ensure that sector growth prospects are not harmed. Instead of trade barriers, manufacturing should be supported a range of genuine policy reforms including investment in R&D, creation of supply chain and associated infrastructure. Please read our full report here.

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