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Solar power trade dispute: Local companies worried over India's move at WTO |
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NEW DELHI: Domestic solar manufacturers are alarmed over a proposal the government has sent to the World Trade Organization, seeking compromise in the dispute over the domestic content requirement in India's solar programme, prompting some firms to put their expansion on hold. "We wanted to double manufacturing capacity from 500 mw to 1,000 mw per year but now we won't be doing so until there is clarity in government policy," said Hitesh Doshi, chairman at solar module manufacturer Waree Energies Ltd.
The dispute began in February 2013, when the US protested to WTO that domestic content requirement (DCR) component in Phase II of India's Jawaharlal Nehru National Solar Mission was inconsistent with three separate agreements reached at WTO, to which India was a signatory. DCR provides all solar developers who opt for locally made panels and modules a subsidy of up to Rs 1 crore for every megawatt installed.
The US argued that this denied global players a level playing field. In August 2015, a dispute resolution panel set up by WTO ruled against India. India had appealed against the ruling, but in end-January, there were reports that the ministries of commerce and new & renewable energy had agreed to withdraw the DCR option for private companies.
"The news is certainly a dampener," said Gyanesh Chaudhary, MD at solar panel manufacturer Vikram Solar. While unwilling to comment on the proposal, Tarun Kapoor, joint secretary in ministry of new & renewable energy, maintained that DCR was definitely not being abandoned.
"Local industry interests will never be compromised," he said. A WTO-compliant way out would be to restrict DCR to solar installations by government-run bodies such as the railways and defence establishments. Currently, these are under no obligation to use locally made modules. Imported solar panels have been pouring into the Indian market ever since August 2014 when an anti-dumping duty on these was scrapped. Solar panels used in India come predominantly from China, followed by Malaysia and Taiwan.
A small number comes from the US and other countries. Developers prefer imported panels, especially those from China, since they are 8-10% cheaper than Indian ones and often technologically advanced. "We are unable to compete in the open market because of subsidised export from China," said Chaudhary of Vikram Solar. Industry watchers, however, said a bigger problem is the nature of production in India. "Most Indian manufacturers began business well before the National Solar Mission was announced and were geared mainly towards exports to Europe," said Sujoy Ghosh, India head of US-based solar panel maker First Solar.
"It was all about importing cells and making modules and exporting them, making some money on the labour arbitrage," he said. "When the solar mission happened, the same people they were importing from began competing against them. Obviously you can't win against someone from whom you are buying your basic material. Second, with the kind of scale Chinese solar companies have, 10 to 20 times that of leading Indian companies, they have a lot more areas where they can bring price down," Ghosh said.
First Solar, which manufactures bulk of its products in Malaysia, is the leader in the highly fragmented solar panels market in the country. Vinay Rustagi, managing director at solar consultancy Bridge to India, agreed. "What we have in the name of manufacturing is just a low tech assembly operation." While India lacks advanced R&D capabilities, China has better infrastructure, supply chain and cost of debt financing is much lower there, he said. Analysts said that with Indian modules comprising less than 5% of local supply, withdrawal of DCR would not make any difference to the surging solar market. Also, DCR has so far failed to give any fillip to local manufacturing.
"The key thing is that the policy regime around manufacturing is unstable," said Rustagi. "If compromise is reached with WTO, the public sector will still provide local manufacturers some protection, but it can't take on additional supply or create additional demand." Doshi of Waree Energies said module manufacturers do about 20% value addition in India. "Unless there is protection or incentive, no investment will come into solar production," he said.
"The US and Europe have anti-dumping policies to protect solar manufacturing industries. A US developer importing Chinese modules has to pay 65% import duty while an Indian developer pays nothing. It would be more beneficial for an Indian firm to set up its solar manufacturing facility in China than in India."
Indian manufacturers should look at the silver lining in this decision. Being forced to compete with global players will be good. Indian solar manufacturers need to focus on augmenting production and R&D capabilities to be able to compete with global players. The International Solar Alliance which brings together some 120-odd countries provides huge business opportunities for Indian manufacturers. This is what Indian manufacturers must gear up for.
Source : economictimes.indiatimes.com
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