Issue

Context

Cabinet Committee on Economic Affairs (CCEA) approved Rs 8,580 crore for solar power projects developed under the second phase of the Central Public Sector Undertaking (CPSU) scheme. This is expected to add 12 gigawatt (GW) capacity to the power grid between 2019-20 and 2022-23.

With this move, the long-standing ‘import versus manufacturing’ debate that has dogged India’s solar sector has resurfaced

About

CCEA has recently approved an extension to the existing 1,000 megawatts (MW) central public sector undertaking (CPSU) scheme under the National Solar Mission (NSM), taking the cumulative capacity approved under it to 12 gigawatt (GW).

The new funds allocated for the CPSU scheme, is a welcome relief for existing manufacturers, given the slowdown that has hit the sector.

Background

The domestic photovoltaic (PV) manufacturing sector has struggled to capitalize on the solar boom — 88 per cent of solar modules are still imported, with China supplying the lion’s share.

Buoyed by oversupply at home along with state support, Chinese manufacturers are able to supply solar panels significantly cheaper, contributing to falling solar power tariffs in India’s competitive reverse bidding auctions.

After the Indian Solar Manufacturers Association (ISMA) sought an anti-dumping duty on modules from China, Malaysia and Taiwan, a safeguard duty of 25 per cent was levied. It is to be progressively lowered to 15 per cent over two years.

There is another trouble brewing over the Domestic Content Requirement (DCR). DCR lays down that a certain percentage of modules will have to be made in India — in the National Solar Mission and state auctions.

DCR ran into trouble with World Trade Organization (WTO) regulations, and was scrapped in 2017.

Types of technology utilized in the solar panels Monocrystalline: This is the oldest and most developed technology. These are created from a single continuous crystal structure. A Monocrystalline panel can be identified from the solar cells which all appear as a single flat color. Polycrystalline: Polycrystalline also start as a silicon crystal ‘seed’ placed in a vat of molten silicon. However, rather than draw the silicon crystal seed up as with Monocrystalline the vat of silicon is simply allowed to cool. This is what forms the distinctive edges and grains in the solar cell. Polycrystalline cells were previously thought to be inferior to Monocrystalline because they were slightly less efficient. This has become the dominant technology in the residential solar panels market because of the cheaper method and slightly lower efficiencies Thin Film: Comparatively new technology. A thin film panel can be identified as having a solid black appearance. They may or may not have a frame, if the panel has no frame it is a thin film pane. They have the lowest efficiency. Other related terms Photovoltaic: It is the process of converting sunlight directly into electricity. A photovoltaic system uses solar panels to capture sunlight’s photons. These solar panels each have many solar cells made up of layers of different materials. An anti-reflective coating on top helps the cell capture as much light as possible. Beneath that is a semiconductor (usually silicone) sandwiched between a negative conductor on top and a positive conductor on bottom. Once the photons are captured by the solar cell, they begin releasing the outer electrons of atoms within the semiconductor. The negative and positive conductors create a pathway for the electrons and an electric current is created. This electric current is sent to wires that capture the DC electricity. These wires lead to a solar inverter, which then transforms it into the AC electricity used in homes. Viability gap funding: Means a grant one-time or deferred, provided to support infrastructure projects that are economically justified but fall short of financial viability. The lack of financial viability usually arises from long gestation periods and the inability to increase user charges to commercial levels. Infrastructure projects also involve externalities that are not adequately captured in direct financial returns to the project sponsor. Through the provision of a catalytic grant assistance of the capital costs, several projects may become bankable and help mobilize private investment in infrastructure. Safeguard duty: The duty, typically imposed during import surges, is meant to protect domestic manufacturers. Jawaharlal Nehru National Solar Mission/National Solar Mission (NSM): It is one of the eight key National Mission’s which comprise India’s National Action Plan on Climate Change (NAPCC), launched in June 2008. GoI approved National Solar Mission in January, 2010

Analysis

• The CCEA move comes at a time when domestic manufacturers are finding it difficult to sustain themselves because of a flood of cheap import.
• So far, ?24,700 crore of photovoltaic cells and modules were imported in fiscal 2018, which marked a 15% year-on-year growth (imported modules continue to find favor).

Reasons for introducing short-term measures to enable Solar plan:

• Domestic module makers were finding it tough to sustain in mass deployment though, they have found a way to overcome challenges by catering to niche segments (off-grid, rooftop) and forward-integrating into developing rooftop projects.
• Solar cell makers are facing weak profitability and more often are operating at loss.
• There has been dearth of upstream manufacturing capabilities (ingots, wafers, cells).

Key hurdles:

• The Solar industry is a stressed sector. Domestic capacity for cells would be around 3GW by this fiscal-end, while module capacity will be about 8GW.
• Solar developers continue to prefer imported modules despite the safeguard duty. Large-scale investments are seen as risky with only the CPSU scheme as the guaranteed demand source.
• Issue of cell technology: Globally, the solar industry is moving towards mono-crystalline and passivated emitter and rear cell (Perc), technology to improve plant load factors, but a significant chunk of the 3GW cell lines installed in India still uses older technology.
• Moreover, when global manufacturers in the solar cell/module space spend a great amount on research and development to improve cell efficiencies, Indian counterparts remain followers rather than becoming leaders.
• CPSUs haven’t been as enthusiastic, and enforcement remains weak.

Structural deficiency factors:

• Technologically obsolete production lines.
• CPSU scheme being the sole source of demand.
• Weak forecast of fresh capital investments

Structural support required as outlined by the Ministry of Renewable Energy:

1. 1. Interest-cost subvention
   2. Provision for low-cost land and power
   3. Central financial assistance for setting up and upgrading domestic capacities.
   4. Backward integration enablers
   5. A fund to upgrade technology

Way forward

Facilitating enabling factors as outlined by the Ministry of renewable energy would help in improving the competitiveness of domestic manufacturers compared with global giants, which have large installed manufacturing bases, a presence across the value chain and are more cost-efficient.

This has to be complemented by quicker policy actions and heavy investment at research and development stage.

Learning Aid

Practice Question:

“The current slowdown in the solar energy generation sector can be partly attributed to the protectionist measures such as Domestic Content Requirement. India doesn't have domestic Research and development (R&D), technology or even testing labs for certification of modules and inverters”. Analyze this statement and critically evaluate the effectiveness of CPSU scheme extension.