India: Many avenues for solar manufacturing growth post-WTO decision, says Mercom Capital

The expected decision last Friday by the World Trade Organization (WTO) to reject India’s appeal against a U.S. complaint that its Domestic Content Requirements (DCR) for solar cells and modules was against regulations could well prompt the Indian government to develop more creative ways to support its manufacturing base, says Mercom Capital Group CEO, Raj Prabhu.

The initial impact of the ruling is likely to be minimal, Prabhu said, arguing that only the few manufacturers in India overly dependent on the DCR market are likely to be unduly affected. During the trade dispute, U.S. solar PV imports into India fell by more than 90% since the introduction of the DCR.

However, the DCR played a very minor role in this contraction. Rather, India has been flooded by the world’s cheapest solar modules from China, retailing at or below an average price of $0.39/watt. This, Prabhu stresses, is India’s larger concern, with domestic manufacturers – who generally produce panels at prices some 10-20% higher for DCR projects – struggling to compete.

"The DCR policy has always been contradictory," Prabhu said. "The government doesn’t want cheaper imported panels, but wants solar power at the lowest possible price. Locally manufactured panels for DCR projects cost 10-20% more, and interest in these higher-cost projects has waned."

With the WTO ruling that the DCR contravenes global trade rules, India must now explore other, more creative and proactive ways, to protect and subsidize its manufacturing sector. The DCR only ever benefited a handful of developers anyway, Prabhu added, because DCR projects are a small part of the solar capacity auctioned. Now, at least, manufacturers can have more clarity and adjust their strategy accordingly in order to offer competitive bids.

The current DCR pipeline to be auctioned during the National Solar Mission’s (NSM) Phase II batch 2, Batch 3, Batch 4, NTPC projects and SECI/Coal India Limited projects is 925 MW, which is less than the 1,167 MW of DCR projects awarded in previous rounds last year.

The next step for India’s Ministry of New and Renewable Energy (MNRE) is to develop feasible ways to nurture more local and competitive manufacturing without contravening WTO rules. A recent meeting with government officials found an unwillingness on the part of some states to participate in projects deemed too expensive, which includes DCR projects that have struggled to attract developers.

The joint secretary of the MNRE, Mercom reports, has suggested proposals for a fixed amount of subsidies for domestic cell and module manufacturers based on capacity, while other plans on the table include manufacturers receiving viability gap funding (VGF) support for large solar projects.

SoftBank plans India expansion

Japan’s SoftBank Group Corp. has told Bloomberg that it is mulling a manufacturing joint venture in India to produce solar panels under a new partnership. The firm last year created a JV with Bharti Enterprises and Foxconn Technology Group to generate 20 GW of solar power, but SoftBank’s executive chairman Manoj Kohli has said that it is likely to seek a new JV for India.

"To build large-scale manufacturing efficiency matching Chinese economies of scale will require government support," Kohli told Bloomberg. "Indian support policies are in an evolution stage." The executive suggested that SoftBank’s SB Energy could move on a JV in India once the government puts in place a Made-in-India policy for panel manufacturing.

Currently, cheap Chinese modules more than meet demand in India, with Bloomberg New Energy Finance (BNEF) data showing that in the first half of this year the country imported close to 3 GW of solar cells and modules from China.

Kohli added that India’s path towards self-sufficiency could be aided by manufacturing power-storage solutions, particularly once prices fall closer to INR 1/kWh. “It will take three more years when storage will reach the affordability that India needs,” he said, adding that government policies encouraging local production could help propel India’s storage market to the top table globally.