Indian trade war a costly distraction13. February 2013 | Global PV markets, Industry & Suppliers, Markets & Trends, Investor news, Trade cases | By: Raj Prabhu
The Indian solar market appeared to have some momentum until it initiated an anti-dumping investigation against China, Malaysia, Taiwan and the U.S. For a solar market still in its infancy, starting a trade war could become a costly distraction when the focus should be to encourage new technologies, competition and free markets.
The investigation is based on alleged dumping of solar modules by the aforementioned countries into India. The complaint was filed by solar manufacturers in India with the goal to protect domestic manufacturers that are struggling along with most PV manufacturers around the globe.
Meanwhile, the U.S. just announced that it has requested World Trade Organization (WTO) dispute settlement consultations with the government of India concerning domestic content requirements in India’s national solar program.
The U.S. states that India’s program appears to discriminate against U.S. solar equipment manufacturers by offering subsidies to developers that use domestic solar equipment instead of imports.
The trade dispute is sure to add unwanted uncertainty to the young Indian market where financing is already a challenge, and would make investors further skittish.
It is also surprising that a country with approximately 300 to 400 million people without power, with a 10% power deficit and 13% peak power shortage has decided to go this route instead of an "all of the above policy" to meet the power requirement goals.
It was only a few months ago that India faced one of the largest blackouts ever, when 600 million people went without power for several days due, in large part, to insufficient power generation.
What to expect in Phase II
The Ministry of New and Renewable Energy (MNRE) recently proposed a draft Phase II policy and opened it up for comments. Phase II would have a target of achieving 3 to 9 GW of solar power through various batches, as previously seen in Phase I.
The Phase II policy intends to take an aggressive approach to domestic manufacturing and domestic content requirements. Some of the policy proposals include: cells and modules produced in India to be used for all PV projects; price preference for domestic manufactured cells and modules; a percentage of domestic content (~50%) for both PV and thermal technologies; a percentage of cells manufactured in India, some batches with 100% domestic content requirement; and 50% of supply costs (excluding land, taxes, erection, financing, soft costs) for thermal technologies material to be manufactured in India.
The other new proposal is the Viability Gap Funding (VGF), which may end up being applied to most of the projects. Under VGF, developers will sign a Power Purchase Agreement (PPA) for 25 years to sell power at a fixed tariff, likely in the Rs.5.5-6/kWh (~$0.10-0.11/kWh) range to the utilities.
The developers are supposed to determine their capital costs to set up the project, raise the necessary debt and equity, and bid for the VGF requirement to cover the gap in funding. A pretty risky approach considering how new solar is to India.
According to MNRE, bids will be thoroughly inspected to discourage aggressive bidding and avoid sacrifice of project performance over the long term. MNRE has proposed a phased payout: 25% at the time of delivery of at least 50% of the major equipment at the site, which would be based on the cost of total procurement; 50% on successful commissioning of the full capacity of the plant; and the balance of 25% after one year of operation meeting the required generation. VGF could cover up to 40% of the project cost.
What remains to be seen, is how this will work out in the final policy. With borrowing costs in India in the 13 to 14% range and no technical requirement (anybody can bid), banks consider most of these projects too risky to finance.
The government now sees JNNSM as a public-private partnership. If the policy goes in this direction, solar in India will soon start to resemble other infrastructure/conventional energy projects that haven’t been so successful thus far.
Read the full article, including an update in the various Indian state policies, in the March edition of pv magazine.
Edited by Becky Beetz.
About the author
Raj Prabhu is CEO of Mercom Capital Group, llc, a clean energy communications and consulting firm with offices in the U.S. and India. Mercom consults with its clients on market entry, strategy, policy, due-diligence and joint-ventures. For more information, visit: http://www.mercomcapital.com. To receive a copy of Mercom’s market intelligence reports, visit: http://mercomcapital.com/market_intelligence.php
Choose between a digital and print subscription from pv magazine publisher Solarpraxis AG’s online shop!
- 3106 views
- 2957 views
- 2875 views
- 2631 views
- 2388 views
Want to publish your press releases for free? Simply log in or register, enter the information you want to appear and we'll publish it for you!