Is JNNSM falling flat on its face?


Government can still save it by following an unbiased approach, and by protecting domestic players and products

Raghunandan SS, vice president, engineering, Kotak Urja Pvt Ltd
Raghunandan SS, vice president, engineering, Kotak Urja Pvt Ltd

Saturday, September 15, 2013: India is blessed with a lot of sunshine but cursed with power cuts. The Jawaharlal Nehru National Solar Mission (JNNSM), which was launched with much fanfare in 2008, bringing in many players from different segments of the solar energy business, made a lot of noise in the beginning but the pace of development seems to have slowed down.

Much before the JNSSM, the European boom made China ramp up its manufacturing base. Directly or indirectly, China changed the European and American technical dominance in this field. This led to a change in India’s position in the global market. From a manufacturing capacity of a few MWp per year in 2005, India turned into a profitable manufacturing base for the world’s top solar companies, and has reached a GW production capacity today.

After BP Solar’s plants in Spain and Australia closed down, the company moved to India. In spite of 95 per cent of raw materials having to be imported from the US, Europe and Japan, India was a favoured manufacturing hub due to its low cost of labour and high quality consciousness.

Impact of boom in Germany

Solar panelThe boom in Germany led to explosive growth in China, which adopted the short cut route to establishing a solar manufacturing base. This brought about two major changes. Both the CAPEX and the PV module prices came down to more realistic levels. The US announced more Solar Programmers and the Indian manufacturing base expanded side by side to provide a good platform to this move by the US.

The awareness about global warming and climate change pushed PV sales up, which, in turn, created a big gap between supply and demand. The gap widened in 2006-07, and under pressure, the industry began looking for alternate technologies to crystalline PV. The artificially high price of polysilicon made other PV technologies viable, and these were adopted hurriedly by a few players as an alternate to crystalline PV. US based thin film equipment suppliers made supply contracts with companies like Moser Baer, Signet Solar, Suntech, etc. Signet Solar announced its big MW scale production plans in Germany and India—its plans for the latter were flagged off by its highly publicised foundation stone laying ceremony for a 300 MW thin film plant in Chennai.

Major projects put on hold

Moser Baer went ahead with its multi-crore thin film production lines. All these investments made big news. Then, all of a sudden in 2009-2010, Signet Solar filed for bankruptcy in Germany, followed by a few other firms that had also opted for thin film lines in Europe and USA. Further, Applied Materials withdrew its thin film PV equipment. There were a couple of other investment announcements from Indian industry giants like Reliance, Lanco and Birla, but none of them could make it, in spite of companies looking for big opportunities as a result of the semiconductor policy. Reliance started on a small scale, manufacturing modules as well as DC home and street lighting products. Lanco and Birla explored a few backward integration options like polysilicon, wafers and cells, and even went as far as announcing their ventures. Surprisingly, all the projects were put on hold.

Reverse bidding for projects

In 2010, JNNSM was in the news because of the big rush it triggered. Over subscription by project developers for allotments resulted in reverse bidding. Without looking at the ground realities, many bidders offered huge discounts and some of them did not even close financials thereafter. The state of Gujarat did not fare any different. One by one, plans for manufacturing cells, wafers and polysilicon, fizzled out. By this time, a few of the solar cell companies like Indosolar, Jupiter and Euromultivision had already gone ahead with their turnkey lines from Europe. Japanese giants like Sanyo and Sharp also dropped their Indian production plans. Only a few local players established PV module manufacturing units.

Realities of PV technology

Globally, the industry never realised the real cost of producing polysilicon, which is the main ingredient in solar technology. Sand is the third most abundant resource on earth next to water and air. Extracting a kilogram of polysilicon from sand requires over a hundred kW of power, tons of water and complex technology. Manufacturers of thin film did not realise this, and manufacture appeared profitable when the price of crystalline PV was artificially maintained at about US$ 4/wp. But the reality of crystalline PV is reflected in its current pricing. In addition, the overall cost of the PV systems and their durability are the criteria which will decide the survival of the technology. With companies investing a few hundred crores, the returns on investments could not be justified. And the reason why those thin films lines flopped was mainly due to crystalline PV prices making a recovery, which rendered earlier calculations regarding the profitability of thin film, invalid.

Indosolar, which was the first company to go the IPO way, poured money into turnkey suppliers. Even though the plant was the most modern, it did not secure itself against the risk of fluctuating raw material and cell prices. The EOU route did not favour as the European market itself saw a sudden break in solar programme. The domestic market did not attract local cell makers as the oversupply from Chinese module makers with attractive spot deals for thin film resulted in cell plants shutting down production across the globe.

Reality of JNNSM

It is not known as to who is the ‘Sam Pitroda’ of the green energy revolution as far as JNNSM is concerned. Even though JNNSM was structured through NVVN (NTPC), it did very little to protect domestic content and domestic players. It just mentioned that Indian made modules and cells are to be used by those firms that wish to qualify for the scheme. However, there are so many loopholes in JNNSM that it has failed in fully safeguarding domestic players. In place of crystalline PV modules, thin film stocks were offered to Indian developers at throw away prices. This upset the ROI and long term viability calculations of those in the crystalline space. But slowly, crystalline PV technology is becoming the undisputed choice for those who have had long term experience working with different technologies.

By now, a lot of imported thin film modules had side stepped the JNNSM requirements for the use of Indian made modules and cells. China provided big financial incentives to its exporters; while India did not in any way secure its local players from invasion. This resulted in overseas suppliers dumping their modules at cheaper prices than those that were locally made. Besides, the polysilicon and wafer plants being set up in India did not get into production in time to block the gates to outsiders.

As the European slowdown and China’s over supplies resulted in a price crash, the Indian polysilicon projects were stalled. Ideally, the government should have gone ahead with its semiconductor policy and promoted the silicon business. Silicon is not just a raw material for the solar industry; the electronics industry, which is heavily dependent on imports, could have also benefited. It is known that China’s price crash is heavily subsidised and will be short lived. It would be better for the government to ensure that the Indian manufacturing industry grows to secure a strong future. At this moment, unless the government realises the importance of securing the industry’s growth through the route of self-reliance for all the components in the value chain, JNNSM will face difficulties. In the event that the industry does not grow healthily, India’s dream of solar power generation attaining grid parity by 2022 will remain a dream, with power cuts increasing in most parts of the country. The government must adopt an unbiased approach to help the solar industry grow.

Foreign investors can look at the Indian solar PV business only if the domestic market is secure enough to provide a good ROI. With the JNNSM stumbling along and an insecure domestic market, investors are re-thinking their plans. Strong government initiatives towards securing the industry can ensure more investments and the realisation of the 20 GW dream.

 Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine


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