Reliance Industries (RIL) Chairman Mukesh Ambani recently unveiled a green energy plan. And, like everything else about RIL, it was grand — Rs 75,000 crore to be precise. “By 2030, the company aims to have 100 gigawatts (GW) solar capacity, which will be more than a fifth of the 450 GW renewable energy target set by the government for the country,” Ambani told RIL shareholders at the company’s latest annual general meeting.
More than that, he said, RIL is developing a Dhirubhai Ambani Green Energy Giga Complex over 5,000 acres in Jamnagar which will have four giga factories, including an integrated solar photovoltaic (PV) giga factory. It will start with raw silica and convert it into polysilicon, which will then be turned into ingots and wafers. These wafers will be used to make solar cells and finally assembled into solar modules.
In short, RIL is looking for an end-to-end solution to what is fast turning out to be the biggest roadblock to India’s ambitious solar power plans — shortage of capacity to manufacture solar modules and the resulting import dependence. “We will target costs that are the lowest in the world,” he said.
RIL may be the most ambitious but is not the only game in town. Encouraged by the government’s attempt to push local manufacturing through import duties and production-linked incentives, a host of companies such as Vikram Solar, Adani Solar and ReNew Power have drawn up plans to make solar power equipment in the country. Their initiatives will be the key to India’s ambitious solar capacity addition targets. The country aims to produce 450 GW of renewable energy by 2030. Of this, 280 GW (over 60 per cent) will be solar, which means the country has to add 25-30 GW solar capacity every year for the next 8-10 years.
India has every chance of meeting these targets. However, there is a hitch. The country’s solar PV cell manufacturing capacity is only around 3 GW per year, solar PV module capacity is only 10 GW per year and it does not make the three key raw materials for solar panels — polysilicon, wafers and ingots. The result is 85-90 per cent dependence on imports, mainly from China, which controls almost the entire global supply chain in solar power manufacturing.
Can manufacturing plans of the likes of RIL break this dependence and put the country’s solar power plans on a fast track?
Over the last few months, raw material prices have been increasing, inflating solar equipment prices and forcing developers to postpone imports and put many projects on hold. Ratings agency Crisil estimates that rising solar panel module prices may hit returns from 12 GW of solar projects which have been bid out at tariffs of less than Rs 2.5 per unit after March 2020. Returns will dip by 200 basis points and future tariffs rise by 10-15 paise per unit, it says. Modules account for more than 50 per cent cost of a solar power project. “Assuming no further strengthening of rupee against the dollar, at $0.25 per watt, the landed cost of solar modules will be higher by over 10 per cent in rupee terms and project costs will rise by 6-7 per cent in this calendar year,” says Ankit Hakhu, Director, Crisil Ratings.
“It is clear that for projects under construction, some of these increased prices would not have been assumed while bidding, and to that extent, returns from such projects would be impacted. These higher commodity prices can be built into the tariffs for future bids,” says Sumant Sinha, Chairman and Managing Director of ReNew Power, one of India’s largest renewable companies.
This is a reversal of the long-term trend. Solar module prices had come down from $1,800 per kilowatt (kW) a decade ago to less than $180 per kW last year. This brought bids for solar power projects below the price being quoted for coal-based projects, triggering a solar power revolution that saw India adding nearly 30 GW of solar capacity over the last five years to reach over 40 GW till March. India imported over $2.16 billion worth of solar PV cells, panels and modules in FY19. Annual imports have been in the range of $2-2.6 billion since 2015, say sources.
But there was also a flip side to this. While the dip in prices powered India’s huge solar power capacity expansion, it also crippled its efforts to build capacity to produce the inputs. Chinese imports, after all, were dirt cheap, as the government there offered its solar sector numerous benefits such as free land and electricity, tax breaks, apart from indirect and direct funding. Chinese solar equipment companies such as Suntech Power, Yingli Green Energy, Trina Solar and LDK Solar created huge capacities, killing hundreds of manufacturers in the US and Europe. China’s solar PV manufacturing capacity, which was 106 GW in 2019, up from just 10 GW a decade ago, now accounts for over 71 per cent of the world total. The country is the largest producer of silicon wafers with 97 per cent market share. It controls 79 per cent of the PV cell market and 67 per cent of the market for polysilicon, the raw material used to make solar ingots and wafers. Its manufacturing capacity is well over 100 GW.
However, the pandemic changed this. Production and supply chain problems due to lockdowns, apart from high shipping freight rates and labour issues, pushed up prices of raw materials such as polysilicon, steel, aluminium, copper, PV glass and films. Solar panel prices rose 20-40 per cent. A fire at GCL Silicon’s polysilicon plant at Xinjiang in China early this month is expected to reduce global polysilicon production by another 10 per cent, further pushing up prices. “Solar EPC companies have borne the biggest brunt of change in prices in the last six months. Prices of all base metals went up by 20-40 per cent. These prices play an important role in deciding project costs,” says Gyanesh Chaudhary, Managing Director, Vikram Solar, India’s largest solar equipment maker.
“Many projects under way have been halted. The developers are asking for a price revision, but project costs are rising, causing them to postpone award of contracts,” says Animesh Damani, Managing Partner, Artha Energy Resources, one of the leading companies in project development, M&A facilitation and project financing in the solar sector. While the number of deals has risen compared to last year, on-ground development has slowed down. Damani says he was not impacted as, like some of his peers, he took the risk of ordering equipment in bulk and storing it in warehouses, instead of the usual practice of placing orders after winning a contract.
For a Level-playing Field
Amid these pressures, India has been trying to encourage domestic solar equipment manufacturing. The aim is to insulate its solar plans from global risks. The government plans to impose a 40 per cent basic customs duty (BCD) on solar modules and 25 per cent on solar cells from April 1, 2022. Earlier, following large-scale imports, it had imposed a 15 per cent safeguard duty from July 30, 2018, on solar cells and modules from China and Malaysia. That was set to expire on July 29 this year but has been extended by a year.
This may increase costs for developers but will help India build own capacity. “This is a step in the right direction. The duty will make module imports from China unviable. The idea is to level the playing field between domestic and foreign manufacturers and enhance energy security. Localisation will also create jobs across multiple downstream sectors such as glass, fabrication and installation,” says Sinha.
That’s not all. Two years ago, Solar Energy Corporation of India tendered 12 GW of solar generation capacity, and within that tied a contract for 3 GW of domestic module manufacturing capacity. Recently, the government approved a Production-Linked Incentive (PLI) Scheme for solar PV manufacturing with the Ministry of New and Renewable Energy allocating Rs 4,500 crore ($603 million) for encouraging investments in high-efficiency solar PV modules. The government has also announced a separate PLI Scheme for battery storage. The aim is to achieve manufacturing capacity of 50,000 Mwh. The outlay is Rs 18,100 crore.
The results are showing. At a recent renewable energy equipment manufacturing meeting organised by industry body Confederation of Indian Industry, Union Power Minister R.K. Singh said the government has received interest from companies for building “large quantities” of solar equipment in the country. Indu Shekhar Chaturvedi, Secretary, Ministry of New and Renewable Energy, said at the event that, according to initial estimates, bids amounting to 30 GW would be submitted under the PLI Scheme. Vikram Solar recently inaugurated a 1.3 GW module manufacturing facility in Chennai to become India’s largest module manufacturer with 2.5 GW capacity. Chaudhary of Vikram Solar says the Kolkata-based company is planning to invest over Rs 5,000 crore in the next five years to set up over five GW manufacturing capacity. Reportedly, about 15 companies such as US silicon wafer maker 1366 Technologies, First Solar, Acme Solar, Vikram Solar, ReNew Power and Adani Solar are planning investments worth over $3 billion in India’s solar equipment manufacturing sector.
Experts, though, say that more is required. “The introduction of the PLI Scheme doesn’t mean Indian manufacturers can compete with China. India’s cost of manufacturing is competitive but input costs are very high. This makes us uncompetitive. The Chinese government is providing its companies 15 per cent export incentive, free land, staff salaries for some years and soft loans. That is why they are able to dump their products,” says Saibaba Vutukuri, CEO of Vikram Solar. India needs to levy a 40 per cent BCD to expand the domestic solar manufacturing market in India, he says. Chinese products are 25-30 per cent cheaper than Indian products. If its prices fall a further 10 per cent, it will probably start dumping its modules in India again, the industry fears.
Getting Back on Track
In spite of the uncertainties, the sector will soon bounce back, say top industry executives. “Despite the initial challenges related to Covid-19, the sector’s recovery has been swift with construction activity picking up. Demand for power is also rising. This month (July) saw the highest-ever peak demand for power. The rest of the year should see many projects getting commissioned and several power purchase agreements being signed,” says Sinha of ReNew Power. Damani of Artha Energy estimates that solar module prices are likely to cool off by the end of the year. This will bring back the momentum. Auctions for more capacity, including innovative tenders such as supply of round-the-clock power, are also helping the sector make a comeback, say industry executives.
Innovations and new technologies are also going to change the sector by bringing down the cost of modules over the years. The industry has been continuously innovating to further improve the efficiencies of the cells significantly. “The industry is also looking to innovate the wafer-making process. On the cell side, the real paradigm shift would be the introduction of the Perovskite-Si Tandem solar cells which would have higher efficiency and potential along with the capability to convert a large solar spectrum into electricity,” says Sinha.
The initiatives by the industry and the government could help India achieve its clean energy targets much before the current deadlines.
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