24 June 2014 | Jasmeet Khurana
The Indian stock market as a whole has been on a bull run ever since the new government has come into power. However, one group that has done exceptionally well is the solar cell manufacturers, whose valuations had been very low before. The stock price of the three independently listed cell manufacturers has risen sharply: Websol Energy Systems rose a staggering 168%, Moser Baer by 130% and Indosolar by 254% in the past three months.
- The stock price boom has been triggered by favorable regulatory measures, recommendation of anti-dumping duties on import of solar cells and rise in exports to Europe
- Indian manufacturers still remain far from recovering from the global oversupply from foreign manufacturers
- What will drive successful solar manufacturing in India above all else, is a stable and strong, long-term demand for solar modules based on transparent and predictable regulations and a supportive financing environment
The stock price boom has been triggered by favourable regulatory measures and international market developments. The expanded domestic content requirement (DCR) under the National Solar Mission (NSM) gave the first positive impulse to the Indian cell manufacturers. Despite delays from developers in placing orders, it was clear that Indian cell manufacturing units could be up and running near capacity limits soon to meet the demand created by the NSM.
The second trigger is the recommendation for anti-dumping duties on import of solar cells and modules by the Ministry of Commerce. Actual imposition of such duties could be a booster for Indian cell manufacturers in the short term, if they can deliver sufficient quality cells for modules in the short term over and above the NSM domestic content tranche (which is doubtful). However, most other stakeholders in the industry, including the power consumers, the developers, EPC companies, BOS suppliers and even most of the domestic module manufacturers that do not have cell manufacturing capabilities would suffer and oppose the duties.
Finally, the Indian module manufacturers have been boosted by the rise in exports to Europe as a result of European protectionist measures against Chinese solar manufacturers. Last year, the European Union entered into an agreement with several Chinese companies (which together had over 60 per cent of the EU market) to commit them to a minimum selling price and maximum sales volume (refer). Indian suppliers have been able to fill in some of the gap left behind by the Chinese suppliers. This is especially beneficial for integrated cell and module manufacturers like Tata Power Solar and Indian module manufacturers who use cells from China to Taiwan. Overall, Indian solar companies’ exports to Europe have risen from $106m in FY 2012-13 to $270m in FY 2013-14 (making up around 80% of their exports) (refer).
However, from a longer-term perspective, Indian manufacturers are still far from recovering from the hard-hitting global oversupply conditions in 2012 and 2013 that led to a strong consolidation in the manufacturing sector. Their valuations on the stock market, even after this rally, are still just about 1/5th of their all-time highs. The Indian manufacturers face larger issues around their competitiveness, which none of these short term measures can resolve. These include a comparatively small scale of operations, high interest rates, limited vertical integration and a high cost of power.
What will drive successful solar manufacturing in India above all else, is a stable and strong, long-term demand for solar modules based on transparent and predictable regulations and a more supportive financing environment. As there are hopes that the new government might focus on that (rather than getting side-tracked by short-term measures), many Indian and international investors are talking about investing into solar manufacturing in India again, with the aim of going larger or deeper or integrating Indian manufacturing better into global operations.
Jasmeet Khurana is a consultant at BRIDGE TO INDIA.