Do Duties And Tariffs Really Help The Indian Solar Market?
Background
Oxford Economics, a global forecasting firm predicted in its recent studies that global GDP will fall by more than 20% if the current policies of global warming are not changed. It also pointed that India with a coastline of almost 7500 km could lose nearby 90% of its GDP.
For nation’s development and security mandate it is important that we
have a local manufacturing value chain. It would be a great threat to the
nation, if we completely dependent on foreign suppliers for something as critical
as the power sector.
In this paper, we will try to understand whether if Safeguard (SGD)
and Basic Customs Duty (BCD) really help the nation or is there are any other
approaches that might be beneficial.
Why are we and the world
importing from China?
There have been numerous reports observed in the last 6 months of Indian
Government contemplating imposing duties on Chinese solar modules and cells to
protect Indian Solar Manufacturers. There were discussions on Basic Customs
Duty and safeguard duties. That have been furthered by border rows with china
recently.
However duties in solar space are nothing new for India. India Imposed a safeguard duty of 25% between July 30, 2018 and July 30, 2019 which was reduced to 20% between July 30, 2019 to January 30, 2020 which further got reduced to 15% between January 30, 2020 to July 30, 2020. Despite of these duties India has been dependent on imports of solar equipment.
In the year 2019, despite of these duties, India imported 80% of all
solar equipment worth 2.17 billion USD.
China was accounted for
78% of these
imports followed by
Vietnam, Singapore, Thailand and
Hong Kong. The reason behind high level of imports from China is that they are
far ahead of every country in terms of manufacturing capacity and they enjoy significant
of economies of scale.
At present, the global annual solar PV production is around 140 GWP.
Out of which nearly 90 GWp or almost 70% is located in China. Chinese companies
also control some capacity outside China like the REC solar in Singapore. It
has a 1.5 GW manufacturing facility, owned by a Chinese firm named China
National Chemical Corporation Ltd
(ChemChina).
The Chinese government provides cheap power, water, tax benefits,
credit facilities, power, and other incentives to companies in the
manufacturing space.
India being close to 10 GW and 3GW respectively in solar panel and
cell manufacturing capacity, it’s assumed that only Indian manufactures will be
able to contribute to the mission of installing up to 27 GW of solar annually
for the next decade.
We have missed the solar manufacturing bus long back. The Chinese companies
have a capacity of 100 GW or more so it would be beneficial for us to use this
global supply chain rather than creating a new supply chain to compete with the
Chinese in the module manufacturing space. Our focus should be to catch the bus
and not miss it again in the renewable energy sector.
Our experience with
duties from over the last 2 years. Are duties making us weaker?
As India does not make solar cells, wafers or high grade Polly silicon
ingots, duties on solar panels and solar cells, haven’t really helped us. Even
today, most of the solar panel manufacturers procure their solar cells from
other countries.
A lot of people have raised questions fearing the use Chinese products
in the power sector. As power sector is crucial to our nation, no compromise
should be made in this regard. If the government really wants to secure the
power sector, duties should be
pushed for solar
inverters, SCADA, power electronics, communication and controls
infrastructure rather than solar panels.
Currently the price of polycrystalline and monocrystalline solar panels
globally stands at 16 US Cents and 17 US Cents. At the current value of 75 Rs
to 1 USD, solar panel price should be around 12 to 13 Rs per kWp. Indian
companies are presently selling solar modules at a price of 16 – 20 Rs per kWp.
By imposing duties on solar modules from China, we are actually making our end
consumers and DISCOMS pay double. A market with no duties would have seen
prices of solar energy drop to 2-2.25 Rs per kWh.
Indian manufacturers have been using duties to increase the prices and
reduce their competitiveness. It’s truly
evident that in the last 2 years, despite having safeguard duty, Indian manufacturers rarely took any steps to increase their competitiveness.
By imposing duties we give the Indian manufacturers a false sense of
security. We feel that this approach
will not work if order to make
India self-reliant in
terms of manufacturing
for solar. It has not helped us
in the last 2 years and it certainly will not help us in future too.
So what should be done?
The Indian IT Sector is one of those sectors which bring pride (and Forex)
to our country. It is renowned and respected globally for its performance and
expertise. Companies like Infosys, Wipro, TCS, etc. have led this sector to its
current position. These companies realized that India is a hub of smart English
speaking people who are even good engineers. They used the strength and history
of India to develop offerings that would add value to the global service
industry.
I think both our political and business leaders should think on the
similar lines when it comes to the power sector. The power sector has become as
dynamic as the IT industry. Renewables have disrupted the power sector like
never before. 10 years back from now we could have never imagined that in
2020-2030, solar would make up to 60% of our total planned installed capacity.
In such a dynamic environments our country should make big bets like the ones
made by our IT leader almost 3-4 decades ago. Some actions that we should take
care of are:
1. Focus on the Battery Storage: Battery storage will be a key component for our future renewable energy systems. We should be looking to become a market leader in the storage space. Incentives should be planned for companies that would be set up manufacturing for battery storage. Visibility of future government plan would go a long way in helping companies make investment decisions. Investment in battery storage would also help India in its ambition of electric mobility and electric car manufacturing. Batteries make up to 50% of cost of electric cars.
2. Investment in the R&D Platform: Another
reason for India to not have investment in the cell manufacturing is that cell
manufacturing requires companies to invest heavily in R&D. This investment
is continuous. 2 major global suppliers Canadian Solar and Jinko Solar have
increased their R&D budgets to about 4 times between 2013 and 2018. In
India manufacturers have negligible R&D budgets.
NREL estimated that the total spend on PV R&D globally in the year
2018 was around 1 billion USD. Today India can invest in a R&D center with partnerships of leading institutes
like Fraunhofer ISE,
UNSW, Stanford, Indian Institute
of Technology’s and
Industry members to
give Indian manufacturers support.
This R&D center would
help Indian companies compete with global manufacturers.
3. Incentives For Indian Solar Manufacturing
(Upto 15 GW): We need to build local manufacturing capacity to tune in at
least 50% of our annual average requirement. Which is about 13.5 – 15 GW. This
manufacturing set up should be for the complete value chain starting from high
grade polysilicon to manufacturing of cells, wafer and modules. This can be
done by providing PV manufactures incentives
like – Cheap electricity, Tax benefit, GST Exemptions, Accelerated depreciation, etc.
rather than just putting duties on competitors.
These incentives would help make solar power cheaper for the end
consumers. New industries
created by these incentives would
lead to more jobs
which in turn
would lead to
more spending and tax collection for the Government.
4. Use Global Supply
Chains for solar
modules and cells more
benefit: Current manufacturing
capacity of module and cell capacity at 10 GW and 3 GW respectively, won’t be
able to support our nation’s ambition of 100 GW of solar by 2022 or even 300 GW
of solar by 2030. Keeping this in mind we should look to develop solar
manufacturing capacity as a strategic investment.
I would like to summarize this paper with the thought that climate
change is a global issue that requires more global cooperation today than even
before. Instead of
putting duties on the
global supply chains
and making things more expensive,
we should focus at providing
incentives to our
local solar manufactures
to make them
globally competitive, thereby we should also open potential export
opportunities for them. By following the basic laws of supply and demand. As
price goes up, demand goes down we could go a long way.
References:
https://theprint.in/economy/global-gdp-could-fall-20-over-next-80-years-due-to-climate- change-economists-warn/456182/?amp
https://m.timesofindia.com/business/india-business/chinese-cos-made-inroads-into-indias- td-networks-since-2016/amp_articleshow/77043830.cms
https://www.financialexpress.com/industry/solar-manufacturers-seek-pass-through-of- planned-basic-customs-duty/2017781/lite/
https://www.livemint.com/industry/energy/india-plans-solar-wafer-ingot-manufacturing- tenders-to-cut-chinese-imports-11594981912323.html
https://www.business-standard.com/article/economy-policy/centre-plans-vgf-support-for- solar-manufacturing-to-cut-china-dependency-120071800532_1.html
https://www.pv-magazine-india.com/2020/07/20/safeguarding-duty-extension-fails-to-win- over-manufacturers/
https://www.saurenergy.com/solar-energy-news/20-duty-on-solar-power-equipment-to- cut-imports-anurag-thakur
https://www.nrel.gov/docs/fy19osti/73992.pdf
https://www.ise.fraunhofer.de/content/dam/ise/de/documents/publications/studies/Phot ovoltaics-Report.pdf
https://mercomindia.com/solar-imports-declined-exports-surged-2019/
DISCLAIMER: View
presented here are just personal views of the author. The author has been
working in the energy sector since 2012 and is the founder of SPRM Energy
Infrastructure Private Limited and Frittsolar.
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