India attempts to deflect domestic content showdown

27. May 2013 By:  Michael Barker/Christopher Sunsong, NPD Solarbuzz

Michael Barker and Christopher Sunsong from NPD Solarbuzz, tell pv magazine about India's new solar policies.

michael barker headshot

Michael Barker, senior analyst at NPD Solarbuzz.

On May 9, the Indian Ministry of New and Renewable Energy (MNRE) released a draft proposal pertaining to Phase II of the Jawaharlal Nehru National Solar Mission (JNNSM). The proposal relates to Batch I of Phase II and is garnering attention not only because it proposes to incentive 750 MW of photovoltaic  projects, but because it proposes to do so by splitting the total capacity into two tranches; one of which would be required to follow domestic content requirements (DCRs) and one that would not. This is a significant change to the program, albeit one not yet finalized, as the DCRs under Phase I had a significant impact on India’s market development.

As a brief background, the JNNSM was program was launched 2010, is split into three phases, and has a goal of installing 20 GW of solar power by 2022. Under Phase I of the program, 500 MW of large-scale photovoltaic capacity was allocated in two separate batches, each with its own distinct DCR.  

Under Batch I, 150 MW of PV capacity was allocated with an average bid price of INR  12.16/kWh (US$ 0.219/kWh). Under this batch of projects, the domestic content was restricted to c-Si modules only, meaning developers could still utilize imported c-Si cells – to be assembled domestically into modules – or imported thin-film modules. Under Batch II, 350 MW of photovoltaic capacity was allocated at an average bid price of just INR 8.78/kWh ($0.158/kWh).  Under this batch of projects, the DCR was strengthened to include c-Si cells and only thin-film modules were exempt. The results of the first phase and the distortions created by the DCR meant that as much as 70% of capacity under Phase I was fulfilled by imported thin film modules due to cost advantages against domestically produced c-Si cells and modules.

The fact that the government-funded JNNSM failed to spur demand for domestically produced modules created a backlash from domestic photovoltaic manufacturers, who claimed that availability of cheap foreign credit and other indirect subsidies by foreign governments put them at a disadvantage.  Thus, domestic manufacturers pursued a two-pronged approach, filing a trade complaint as well as lobbying for stricter DCR under Phase II.  The issue has created a deep schism between domestic photovoltaic manufacturers, who want to be assured a market for their products, and domestic PV project developers, who want to have access to the most competitively priced modules.

Phase II Proposal:

While an official version has yet to be released, draft proposals indicate policy makers are striving to stake out a middle ground and placate both sides under Phase II. Under recently released draft policies, Phase II of the program may target as much as 9 GW of new installations over the course of 2013-2017, with 6 GW of that to be administered at the state level.

As for the future of the DCR, draft policies have proposed splitting future project batches into two categories: those completely exempt from restrictions and those that are completely covered (including thin-film).

The most recent speculation suggests that of the 750 MW in Phase II Batch I, 500 MW would be DCR-exempt while the remainder would follow updated DCR rules. This would assure at least 250 MW of domestically produced modules in 2013; a relatively small amount when set against a backdrop of 1 GW of domestic photovoltaic module capacity.

While it is unclear whether this dedicated domestic carve out will be enough to placate the country's struggling PV manufacturers, it is likely to have consequences for overseas players as well.  Foreign thin-film manufacturers may still find a competitive edge in their ability to provide financing but much of their cost advantage will be eroded as they face competition from low-cost non-Indian c-Si manufacturers.

The plan to split the batch into a DCR and non-DCR is being proposed as a possible compromise in regards to the complaints against the JNNSM’s content requirements as there is already a dispute being reviewed by the World Trade Organization (WTO). That dispute originated from a complaint from the United States, later joined by Japan and Australia, regarding the JNNSM’s DCRs.

With the WTO’s recent ruling that a comparable content requirement, in this case in Ontario, Canada, violated trade agreements it is possible that India’s program administrators are attempting to head-off a similar decision by allowing non-domestic suppliers to access the JNNSM while still maintaining some DCR-capacity in an effort to support domestic manufacturers. It is unclear if this move will be enough to placate both parties but the mere existence of the proposal indicates that policy makers understand that DCRs are a potential liability going forward.

How this decision would fit in with the current anti-dumping (AD) investigation – aimed at Chinese, Malaysian, Taiwanese, US manufactured c-Si & thin-film cells and can be viewed as another domestic content protection mechanism – is unclear. In the best case scenario – in terms of avoiding further trade disputes – the move to open some of JNNSM’s capacity to non-domestic suppliers could be an ‘olive branch’ on behalf of India and might signal the willingness to negotiate with its trading partners on both DCR and AD issues. On the other hand, it must be remembered that this proposal is only a draft report and no final decisions on capacity or actual implementation have yet been made.

In the end, as with all current disputes, the full impact on the PV industry will await final program implementation. But with global trade disputes escalating and country relationships souring the mere release of this proposal should be viewed as a positive sign and one which could possibly alter the trajectory of current disputes.

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Disclaimer: The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

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