Prioritise solar power equipment manufacture

India has been experiencing a spectacular growth in solar power capacity. In the initial years there was interest on the part of several large corporates. With the government’s policy not clear, the interest waned. The dozens of Indian companies rapidly expanding their volumes are assemblers importing the components in large volumes from China and its subsidiaries in Malaysia.

There Is An ambitious target to set up a capacity of 450 GW of renewable energy by 2030 with focus on solar and wind energy. 

Recent years have witnessed a huge interest in solar power. A welcome development is the steep fall in costs. Solar tariffs have dropped from Rs 7.36/kwh in FY 2015 to Rs 1.99/kwh in FY 2020-2021. 

 A large number of new players are entering this field indicating the potential for a huge step up in investments. These can be sustained only if the government enacts stable policies to support and nurture such investments. 

Through the past two decades global solar equipment manufacture had moved from the US and Europe to Asia; rapid advances have been made by South Korea, Taiwan and China for the manufacture of sophisticated electronic products in high volumes. The former two countries excelled in the level of sophistication and in capability for large scale production. China emerged the largest producer and marketer of solar power products. 

To meet the reservations on the part of a large number of companies against its trade hegemony, China has been investing in huge capacities in other developing countries like Malaysia for exports.

Still assemblers and traders…

India has been experiencing a spectacular growth in solar power capacity. In the initial years there was interest on the part of several large corporates like the Tatas and L&T to enter this field. With the government’s policy not clear, the interest waned. New entrants like the Adanis and Vikram Solar quickly expanded operations. However, till hitherto the Solar Photovoltaic (SPV) modules have, by and large, been imported. With low prices, China has crowded out most other suppliers and has emerged the leader. Even the dozens of Indian companies rapidly expanding their volumes are, by and large, assemblers who import components in large volumes from China and its subsidiaries in Malaysia. 

The Atmanirbhar plan of India encourages 15 industries with Productivity Linked Incentive (PLI) for investments in excess of Rs 1000 crore. A vast range of electronic industries, glass, ceramics, pharma, automobiles… are part of these. 

Prospects for large scale manufacture of SPVs in India…

Solar power modules involve four vital components:  aluminium, electronics including wafers and cells, EV including plastics/fibre optics and glass. Of these, the electronic components of wafers, cells and EVs are highly sophisticated and call for large investments. South Korea, Taiwan and China dominate these manufactures. India has the capabilities to take up large scale production of the other important components. 

Over the last two decades the Indian glass industry has emerged strong in terms of volumes and sophistication. There has been increasing levels of sophistication in terms of the quality and range of glasses produced for a variety of applications. The industry also enjoys large export custom. Similar strengths are seen in regard to other components like fabrication of aluminium, optical fibre, plastics… But large investments in these are possible only if there is the assurance of protection against dumping and unfair trade practices. 

India has attempted with great enthusiasm manufacture of several such industrial products but failed to sustain these: I cite the instance of the production of antibiotics/penicillin…  

The rise and fall of penicillin industry – the invisible Chinese hand

Thanks to the foresight of the planners, this industry had deep roots even in the earlier years of planning. Hindustan Antibiotics and IDPL functioned as flourishing public sector units that manufactured penicillin for decades. 

Renowned technocrat Dr M D Nair in his book Fifty years in the Indian pharmaceutical industry, describes with pathos the rise and fall of several of the Indian pharma companies including the SPIC Pharmaceuticals he headed. This company set up India’s largest penicillin plant, a research centre, a formulation unit and medical devices company. The 1000 mmu capacity penicillin unit was set up at a cost of Rs 225 crore and reached its full capacity within a year. Its turnover shot up to Rs 2700 crore based on the spurt in international prices of penicillin. The price crashed from $ 24 to $ 15 per BU; even while the company was adjusting costs and continued with the operations profitably, China reduced the prices to $ 9 per BU. 

MDN recalls with poignancy: “all the penicillin manufacturers – Torrent, J K Pharmaceuticals, Alembic Pharmaceuticals and MAX-GB – stopped operations within months of this Chinese penicillin onslaught. In 2011 SPIC also closed its operations, retrenched the entire staff and handed over the assets to the Asset Reconstruction Company of India.”

The government had the problem of creating protective tariff walls due to the WTO agreements. 

The Atmanirbhar scheme has the promise of support to Indian manufacture. This should cover protection against dumping and unfair trade practices on Indian units. Until this happens, businessmen will take the easier route of being assemblers of imported products. The present practice, of traders, content with modest margins as commission agents, would continue.

Multinationals select countries for investment on considerations of terms most favourable to them. Remember the battle waged by the chemical giant DuPont in the 1980s and 1990s to set up its nylon cord unit? DuPont did establish it with great passion in Tamil Nadu. When conditions became more favourable for trading through exports, DuPont sold off the Indian business and quit India. 

When trading is more profitable and less risky, can investments flow in the absence of reasonable protection? 

Protect against Dumping Solar power capacity was estimated at 40.09 GW as on 31 March 2021.  With impressive plans to switch to renewable source of energy, the logical course would be to bring production of solar power equipment manufacture under the Atmanirbhar mode.  Hitherto the sizeable expansion of solar capacity has been built on imports, mostly from China. Over the three years, 2016-17 to 2018-19, India’s imports of solar power equipment from China amounted to USD 7930.34 million. During April-December 2020 solar cell imports were at USD 1526 million, China accounting for USD 1180 million, close to 80 per cent.  Though the components of such equipment manufacture come under PLI, one doesn’t notice a strong trend towards creating large capacity. The government’s proposal to impose a basic customs duty on imports of solar PV cells of 25 per cent and on solar modules of 40 per cent from 01 April 2022 should be welcome. There is apprehension on the part of industry over the threat of dumping by China and the extent of protection that could be provided by the government. In the absence of assurance of such protection, business will be hesitant to make large investments and the practice hitherto of imports of components and assembling these would continue. Finance Minister Nirmala Sitharaman should take bold to come out with a clear policy on such protection. Increasing share of solar power… Globally total solar capacity has expanded and equals wind capacity. Capacity increased in China (49 GW), Vietnam (11 GW), Japan (5 GW) and in India and Republic of Korea by more than 4 GW. The United States of America added 15 GW. China is the clear leader when comes to Solar PV capacity.  In India, PV power slowed down in 2020 owing to the Covid-19 pandemic. But a strong comeback is expected in 2021 and 2022. Solar PV accounts for between 4 per cent and 5 per cent of total power output. Coal accounts for more than two thirds (68.1 per cent). According to International Energy Agency (IEA) report the share of solar energy could rise to 15.9 per cent by 2030.  Adani Power, Tata Solar, Jinko Solar, Vikram Solar, ACME Solar… are some of the private solar energy producers of India. Adani Solar Power has 2973 MW operational and about 8050 MW under construction.