India: Second phase of NSM likely to include domestic content requirement

04. July 2012 | Global PV markets, Industry & Suppliers, Markets & Trends | By:  Bridge to India

According to Bridge to India, the second phase of India’s National Solar Mission (NSM) will include a Domestic Content Requirement (DCR). Meanwhile, it says that the depreciating rupee is creating difficulty for India solar project balance sheets.

Small solar photovoltaic plant in India

The slide of the rupee will have a negative impact on the balance sheets of some photovoltaic project developers.

The July 2012 Edition of the India Solar Compass, a quarterly report issued by Bridge to India, is exploring the future of the Domestic Content Requirement (DCR) in phase two of the NSM. According to market interviews with leading Indian manufacturers and statements by the MNRE, the company has concluded that phase two of the NSM will most likely include political assistance for Indian manufacturers in the form of a DCR.

The report states that Indian crystalline module manufacturers are operating their plants at extremely low utilization rates of 10 to 15 percent. This is said to be due to Indian manufacturers experiencing a lack of demand for Indian manufactured crystalline modules in the market.

Overall, it says that leading Indian manufacturers currently face a cost disadvantage of 30 percent, compared to internationally-manufactured modules, which receive government subsidies. A leading Indian industrialist further told Bridge to India that they are asking the Indian government to levy an import duty of 100 to 200 percent on Chinese modules, an import tariff on other international modules and a DCR for phase two of the National Solar Mission. If implemented, the DCR might also have implications for trade relations between India and the U.S., it says, which has heavily criticized India’s protectionist policies.

Watch out for the August edition of pv magazine, which will look at the implications of an Indian DCR for international crystalline module suppliers.

Depreciating rupee

In its India Solar Compass, Bridge to India further found that Indian solar projects which secured financing from non-Indian sources in U.S. Dollars are likely to face a negative impact on their balance sheets owing to the recent record depreciation in the Indian rupee.

Factors like a high current account deficit, policy stagnation, low capital in-flows and strengthening of the U.S. dollar in the wake of the Euro zone crisis have led to the depreciation of the Indian rupee by 24 percent since January 2011.

According to the analysis, the slide of the rupee to record lows will have a negative impact on the balance sheets of the developers that have relied on un-hedged or partly hedged overseas borrowing for projects under batch one of phase one of the NSM and projects under phase one and two of the Gujarat Solar Policy.

The principal and interest payments are to be made in the currency of the loan and the revenue is in the weakening Indian rupee. This will nullify the cost advantage that Indian projects expected to enjoy by  securing cheaper loans from non-Indian sources.

The report states that around 84 MW of current installed photovoltaic capacity and 280 MW of yet to be commissioned photovoltaic and CSP capacity is known to have secured project finance through international funding institutions. Another 150 MW of capacity is in the pipeline for funding approvals.

Project developers have relied on international financing sources like the U.S. EXIM Bank, IFC, Asian Development Bank and Dutch Development Bank, among other sources, for cheaper financing of their solar projects. "The currency volatility in the last one year has also left many developers with projects under  batch two of phase one of the NSM with confusion on the right hedging strategy for financing," says Mohit Anand, Bridge to India senior consultant.

Edited by Becky Beetz.


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