Around 5 to 6 GW of this capacity can lead to delays due to a lack of labor and modules.
From Vivek Sharma
In the next two fiscal years, India aims to add 100 GW of solar capacity, 66 GW of which would be greenfield, to reach 175 GW of renewable energy (RE) capacity by December 2022. This if only ~ 22 GW were added in the last three fiscals. And now there's the Covid-19 pandemic, which disrupted the execution of ~ 28 GW of solar capacity under construction. Around 5 to 6 GW of this capacity can lead to delays due to a lack of labor and modules.
The lockdowns will also delay the financial completion of new projects, increase the need for working capital for operational projects, and lead to an adjustment in borrowing costs after a reassessment. Sounds like the end of the world? No, it is actually an opportunity to create more independent growth paths.
Before the outbreak of the Covid-19 pandemic, the center had taken measures to remove sectoral bottlenecks – removal of tariff ceilings, payment security through LoC mechanisms, tripartite agreements as well as the establishment of the Committee for the Promotion and Facilitation of Investments in Renewable Energy and Monitoring Centers amongst other things. Given the expanded lockdown, what should the government focus more on?
For one, there is now an opportunity to revise supply chains and reduce the over-reliance on solar panels on China. Although some imports continue, the indigenization of solar panel manufacturing needs to accelerate. India's production capacity for solar cells is currently ~ 3 GW (~ 18 companies) and for modules ~ 10 GW (175+ companies).
What is required is a complete manufacturing chain as opposed to just assembling modules, buying real added value from China. If we aim to expand capacity by at least 12 to 15 GW per year, we would add about 40,000 rupees per year to the import bill if the equipment cannot be manufactured in India. In this context, there are four reliefs that the domestic solar industry needs.
Creation of demand: Increased manufacturing related tenders with green shoe options to build a large project pipeline and give local manufacturers visibility into demand.
A specific solar energy production policy that includes a clear roadmap for capacity expansion with incentives such as readily available land and buildings, tax / duty exemptions and cheaper electricity. The focus should also be on creating solar zones with wafer, cell and module production facilities on a GW scale to meet domestic demand and tap into global markets. Cutting costs through economies of scale can help India compete against global supply, which is around 20% cheaper than domestic products.
Project finance that provides long-term project loans with lower interest rates and, when combined with government grants, reduces product costs. For example, in Brazil, a lower interest rate is charged when sourcing from a domestic manufacturer. A similar idea needs to be thought through. Perhaps an alternative mutual fund can provide low-cost, long-term financing for manufacturing in India.
Research and development are supported by major investments by the center and by networking with national and global institutes, industries and associations such as the International Solar Alliance.
Hard pressure on domestic production can certainly reduce our dependence on imports. And while this would be a gradual process and add some cost in the short term, it would help secure solar supply chains against externalities. This would also ensure the necessary spare parts for the operating capacities, offer product warranties and alleviate performance-related problems. Furthermore, a competitive solar manufacturing ecosystem would go well with the Make in India goal, helping to achieve at least partial self-sufficiency, creating thousands of jobs and having a multiplier effect on the economy.
The author is Senior Director, Energy, CRISIL Infrastructure Advisory
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