The total manufacturing capacity within the country is about 1500 MW, yet the solar industry is operating at less than a fifth of its capacity
By Richa Chakravarty
Tuesday, December 11, 2012: Ironically, the very month after India crossed the milestone of having an installed capacity of 1GW of solar photovoltaic power in June this year, the northern and eastern parts of India saw one of the worst blackouts in more than a decade. While it was one of the most drastic in recent years, India suffers from power outages frequently. This chronic power shortage in India has created an opportunity for solar energy. While the National Solar Mission (NSM) has proved to be extremely successful by surpassing its target of 800 MW of installed capacity before the end of 2012, Indian solar manufacturers and installers are yet to see the sunny side of this emerging market. Here are some of the challenges faced by module manufactures and developers in the country.
No hay to be made while the sun shines
There are 51 solar module manufacturers in the country and nine cell manufacturers. The combined solar power generating capacity of these units is 1500 MW, yet, today this industry is operating at less than a fifth of its production capacity. A lot of credit goes to NSM because in 2010 only 17.8 MW of solar was installed in the country. Yet, within a span of two years, India has seen a rise in its generating capacity and a major drop in the prices of solar energy. Despite this commendable feat, the solar industry in India is still moving at a snail’s pace.
Unfavourable policies
The current scenario is such that even major domestic companies like Tata Power Solar Systems, Indosolar, HHV Solar and Waaree, despite having the manufacturing capacity, track record and experienced project execution teams, have no major projects or orders in hand. There are several ongoing state programmes and projects under construction, but their requirements are being met through imports. While JNNSM restricts the use of Indian made modules for crystallise technology, there is no such restriction with thin film modules. Domestic players feel that the country is still not ready for such policies as there are currently no Indian companies making critical polymer encapsulants, wafers and cells, high transmission glass, etc.
The key challenge that the Indian solar industry faces is the imposition of import duty on input items in the manufacturing process of solar cells and modules, whereas there is no import duty on finished solar equipment (solar modules). This immediately puts the Indian manufacturers at a disadvantage vis-a-vis imported solar equipment. “It takes a lot of investment to set up a cell manufacturing plant and the cost of production is high in India. Using Indian cell content makes sense only if we are ready for it, but are we ready to compete with the tier I companies globally?” questions Biju PC, manager, sales and marketing, Emmvee Photovoltaic Power Pvt Ltd.
Opines Vivek Chaturvedi, chief marketing officer, Moser Baer Solar, “There is a lack of a level playing field for manufacturers in India vis-a-vis competition from certain non-market economies. We are virtually competing with the country and not with companies. Two important clauses need to be included in the regulations issued by JNNSM. One is the inclusion of all technologies in the domestic content, and the other is guidelines that ensure that all state policies are consistent with the central mission.”
The solution: Most manufacturers have responded to such obstacles by strategically expanding their portfolios—from being just module manufacturers, they have evolved into engineering, procurement and construction (EPC) companies.
Tata Power Solar downstreamed itself as an EPC player in a very strategic way. Most of its projects are supplied with modules manufactured inhouse. It is also a channel partner under the off-grid scheme of NSM. Similarly, other Indian module manufacturers have also stepped in as EPC players to create more demand for their modules. Waaree, despite being a c-Si module manufacturer, has undertaken a 5.75 MW thin film EPC project at Shree Saibaba Sugar factory in Maharashtra. So to stay in the business, manufacturers do not mind switching over to other developing technologies within the same sector.
Shares Raghunandan, VP, Kotak Urja Pvt Ltd, “Unfortunately, the government has tied our industry up in knots, from all directions. While the government has good intentions in promoting the use of solar energy, it has neither promoted R&D nor made it secure enough for domestic players to invest in R&D.”
Thin film poses challenge
Of the total installed capacity in India, thin films comprises around 55 per cent. The cost of crystalline cells manufactured in India is quite high, which is why developers are not ready to buy local materials. As a result, a large number of solar project developers have chosen to import thin film modules. So it is becoming very difficult for the crystalline module manufacturers to sell in the market and compete with thin film. The module manufacturing capacity of Tata Power Solar stands at 125 MW, while Indosolar, India’s largest module manufacturer, has a capacity of 180 MW; yet these companies have no major orders in hand. Last year, Emmvee Photovoltaic Power’s business amounted to 68 MW of installed capacity, of which 30-35 per cent was from India. However, while its current capacity is around 11 MW per month and its business amounts to around 3 MW per month, Indian consumption is negligible.
The solution: A simple solution to this is the inclusion of all technologies in the domestic content. “If the government wants to promote Indian manufacturers, then there should be a balance of both crystalline and thin film technologies. While undertaking any order/project, companies should be compelled to use 60-70 per cent of crystalline modules and the rest can be balanced by thin film. Or else, the government should formulate such policies that do not restrict the content of Indian cells,” advises Biju PC.
Cost of production
Availability of labour, raw materials and power are factored into calculating the cost of production. While there is no dearth of technically skilled people, which is critical for the solar PV industry, yet the cost of labour is comparatively high when compared to countries like China and Taiwan. This is further compounded by high attrition levels amongst experienced professionals, since the same set of people are being chased by different companies. Also, the cost of power is high in India, which further hinders manufacturing within the country. Aggravating the situation is the country’s high dependence on imports for crucial materials, eventually leading to high cost of production. Presently, the price of a module in the MW range is Rs 38-40/watt if the cells used are from a tier I company. The same module sells at Rs 45-47/watt if it uses Indian cells.
The solution: Indigenous capabilities need to be developed soon on the materials front in India, in order to enable innovation in manufacturing and reduction in costs. Companies like Kotak Urja have initiated strong R&D efforts to reduce their production costs. The company has automated its line only in those sections where quality cannot be maintained by the manual process. It has initiated several process improvements and is focusing on bringing down wastage drastically. “I had conceptualised the Zeneration 5 Wafer and cell technology, which is one-third the cost of a turnkey line, both of which could have made us a fully integrated player. Unfortunately, the market security issues that arose due to overseas players entering India, made our dream suffer a setback,” laments Raghunandan. But he is optimistic that the JNNSM dream can turn into reality if the domestic content is developed fully—for which government support is much needed.
Oversupply of modules
About two years back, most Indian module manufacturers were catering to the overseas market, exporting almost 60-70 per cent of their output to European countries. But after the slowdown in the European market, the Indian solar industry saw a sharp decline. For it to take off again, there needs to be demand and adequate local supply to fulfill it. The demand side has been addressed with close to a GW getting installed in India in the last 18 months. Once the supply side is taken care of, most of the pertaining issues would get addressed too.
The solution: The industry is in constant dialogue with the government and has been discussing multiple solutions to take care of the interests of both manufacturers and developers. According to Vivek Chaturvedi, the government should provide incentives to developers for using domestically manufactured products. This happens in countries like Italy and France. Also, as the interest rates are high for manufacturers as well as developers, providing a special rate of interest on funding to developers who use Indian made components can help boost the market.
High rates of interest
The worst hit are the developers. Solar energy is still perceived as a maturing industry and financial institutions are not yet convinced about the viability of projects, and hence refrain from offering credit. Presently, Indian banks are offering credit at a 13 per cent interest rate, which is very high. Aggravating this issue further is the government’s policy on imports, where fully made solar modules can be imported duty-free while the raw materials needed to make modules in India have custom duty imposed on them.
The solution: Availability of financing at the right rates is an urgent need for the large scale growth of the solar manufacturing industry. Priority lending at lower rates for solar projects will help to level the playing field for India with other competing manufacturing economies. Hence, the biggest intervention needed here is from the government in introducing favourable policies for both manufacturers and developers. Also, financial institutions need to build more confidence in the developers, while evaluating their projects.
As Raghunandan puts it, “As long as the challenge is healthy and fair, we do not consider them as real challenges. For any industry, market development is the most challenging issue and that is the phase we are in currently. But the threat is that, there is no security. If the market is secure for us, we will be able to take all risks and put in our best efforts to survive and grow.”
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine
