Solar Make-in-India needs a long-term strategy

Policymakers can draw three major lessons from the Chinese experience.

By Anurag Panda and Abhishek Malhotra

To bolster Make-in-India for the solar sector, the Center recently announced a Production Linked Incentive (PLI) program for solar manufacturing with a budget of Rs 4,500 crore over five years. Basic tariffs of 25% on cells and 40% on panels will also be levied on panels imported from April 2022. These measures follow a series of efforts over the past decade to establish the national manufacture of solar panels. However, several problems remain, notably a volatile domestic market and weak industrial innovation capacities.

Solar panels are mass produced, where low costs are achieved through economies of scale, high capacity utilization factors and optimization of manufacturing processes. Major Chinese manufacturers such as Jinko Solar and Trina Solar have manufacturing facilities with a capacity of over 10 GW. Indian manufacturers will need time to scale up, develop their manufacturing know-how and become competitive on a global scale. To catch up, they will have to depend on a large and stable domestic market over the next few years.

However, the Indian solar panel market has faced headwinds. The annual deployment of solar photovoltaic power peaked in 2017, at over 9 GW, and has stagnated since, falling to 3 GW in 2020, thanks to the pandemic. In the short term, internal market risks will need to be addressed, including counterparty risk, renegotiation of power purchase agreements and difficulties in acquiring land. The manufacturing of solar panels is a rapidly changing industry. Manufacturing equipment can become obsolete in 2-5 years. To ensure that India’s power sector benefits from continued panel performance and cost improvement, a long-term roadmap to reach the global technology frontier is needed.

China’s domination is the result of several public policy measures. First, the Chinese government has provided subsidized manufacturing inputs such as electricity and debt, gradually targeting its subsidies to manufacturers capable of achieving scale and efficiency. Second, aggressive pricing of solar panels at slim profit margins has been made possible by the gradual vertical integration of the value chain. Third, manufacturers have developed their manufacturing process know-how through in-house R&D and learning by interacting with production equipment suppliers from Germany, Switzerland and the United States.

Policymakers can draw three major lessons from the Chinese experience. First, periodic targets should be set for plant capacity, capacity utilization factor, module efficiency, price, and R&D investments. The allocation of subsidies should be conditional on the achievement of these objectives, which would encourage companies to constantly innovate. Second, the incentives for cell and module manufacturing should be complemented by measures to develop a manufacturing ecosystem for the entire value chain. This should be done in a phased manner, starting with the manufacture of cells and modules, and gradually encouraging local manufacture of wafers, ingots and polysilicon. Third, manufacturing incentives should be complemented by incentives for both industrial R&D and international collaborative R&D, allowing companies to reach the technological frontier. Historically, solar panel manufacturing has been very competitive. No company – and, until recently, no country – has been able to capture a high market share over a long period. While it is relatively easy to import turnkey production equipment and set up a manufacturing plant, developing and maintaining a competitive advantage will be a slow and uncertain process requiring huge government subsidies in the long run. term and carries serious risks.

To deal with the risks, we must be clear about the objectives of the policy. If the goal is clean, abundant and cheap electricity, solar panels should simply be purchased where they are cheapest (i.e. in China). If the objective is job creation, the deployment of decentralized and rooftop photovoltaic installations must be prioritized, since downstream jobs represent nearly 75% of employment in industry. If the priority is the strategic location of supply chains, manufacturing incentives should be subordinated to periodic, time-bound, realistic and long-term goals that aim to make the domestic industry competitive on a global scale. In addition, investments are expected to be made in a diverse portfolio of technologies such as lithium-ion batteries, electrolyzers for green hydrogen and energy efficiency technologies as part of India’s green industrial strategy.

Panda is Postdoctoral Fellow and Malhotra is Assistant Professor, IIT Delhi

Get live stock quotes for BSE, NSE, US market and latest NAV, mutual fund portfolio, see latest IPO news, top performing IPOs , calculate your tax by income tax calculator, know the best market winners, the best losers and the best equity funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay up to date with the latest news and updates from Biz.

Source link

About Aldrich Stanley

Aldrich Stanley

Check Also

3 steps to help your business survive the changing market

Like many entrepreneurial businesses, Farmer’s Fridge had to significantly adjust our operations during the pandemic. …