Energising solar module manufacture

As part of its move to incentivise the domestic industry and make the country ‘Atamnirbhar’, the Union Cabinet earlier this month approved the proposal of the Ministry of New and Renewable Energy (MNRE) for a Production Linked Incentive (PLI) scheme called the ‘National Programme on High Efficiency Solar PV (Photo Voltaic) Modules’.

Commerce Minister Piyush Goyal, while announcing the decision, had said that this is for achieving manufacturing capacity of Giga Watt (GW) scale in high efficiency solar PV modules, with an outlay of ₹4,500 crore. Solar capacity addition presently depends largely upon imported solar PV cells and modules as the domestic industry has limited operational capacities of solar PV cells and modules. This programme will reduce import dependence in a strategic sector like electricity. It will also support the Atmanirbhar Bharat initiative, he had added.

The announcement was publicly welcomed by the industry, but all are waiting for the rules to be announced as the manufacturers will be selected through a transparent competitive bidding process. Also, the PLI will be disbursed for five years post the commissioning of solar PV manufacturing plants, on sales of high efficiency solar PV modules. Manufacturers will be rewarded for higher efficiencies of solar PV modules and also for sourcing their material from the domestic market. Thus, the PLI amount will rise with increased module efficiency and local value addition.

The government wants the first round of bidding to be done in the first quarter of this fiscal year itself. Manufacturers have been holding internal meetings and most feel that public sector entities should not be allowed to participate in this programme, otherwise a major chunk of the orders will go to them.

There is also a thinking that polysilicon — which, owing to its excellent semiconductor properties is used as feedstock for solar and is the initial building block for manufacturing silicon-based solar PV cells — be kept out as it takes longer to set up projects using polysilicon. Instead, it is felt that focussing on cell and modules will help expand capacity faster.

What the government expects from this scheme is: additional 10,000 MW capacity of integrated solar PV manufacturing plants; direct investment of around ₹17,200 crore in solar PV manufacturing projects; demand of ₹17,500 crore over five years for ‘balance of materials’; direct employment of about 30,000 and indirect employment of about 1,20,000 persons; import substitution of around ₹17,500 crore every year; and impetus to research and development to achieve higher efficiency in solar PV modules.

The challenges

While it does promote domestic industry, there are challenges as many components are still imported. According to Girishkumar Kadam, Vice-President and Co-Group Head, ICRA, “Healthy capacity addition in the solar power installations in India did not translate into an increased demand for the domestic solar cell/module manufacturers over the years, with the country fulfilling close to 80 per cent of the solar module requirements through imports given the cost variation. This is due to various factors such as lack of scale and backward integration of Indian manufacturers. As per the MNRE, India’s cell- and module-manufacturing capacity is 3 GW and 10 GW, respectively. However, it is to be noted that the manufacturing in India is largely limited to the last two stages, that is, production of cells and modules.”

“The government through various measures and policies has endeavoured to protect the interests of the domestic solar module/cell manufacturers in the past, including safeguard duty (SGD) on imported modules and cells, anti-dumping duty on solar glass, EVA and recently through imposition of basic Customs duty with effect from April 2022. This apart, the government has notified multiple schemes like manufacturing-linked IPP tender, PM KUSUM , etc., with mandatory use of domestically manufactured modules, which provide a strong order pipeline aggregating to 35-40 GW over the next 3-5-years for domestic solar OEMs. The timely implementation of these schemes along with policy clarity on fiscal and financial concessions, including PLI, to promote domestic manufacturing is important,” he added.

According to National Solar Energy Federation of India Chairman Pranav R Mehta, “It is definitely a welcome step. Incentives for manufacturing have been a long-standing ask of the industry. The PLI scheme has the potential to not only increase India’s installed manufacturing capacity but also bring India back on the global map of solar manufacturing.”

“While we look forward to the formal notification from the Ministry, we should also incentivise a large number of 250-500 MW module manufacturing plants, in addition to two or three large ingot-to-cell or wafer-to-cell manufacturers. As MSMEs are the backbone of India’s economy, the PLI scheme should focus on incentivising MSMEs that will produce modules and cells. This will not only help in having homogeneous distribution of manufacturing units across the country but will add value in terms of employment generation, capacity building, etc,” he added.

Will competitiveness improve?

A question that arises is: Will this make the industry competitive, in the true sense? According to Mehta, “Additionally, the PLI scheme should be intertwined with incentives, including but not limited to interest subvention, subsidised rates for electricity/water. With basic Customs duty in place from April 2022, the PLI scheme coupled with incentives to manufacturers will help Indian manufacturers compete with global players and reduce Indian solar industry’s import dependency.”

Kadam adds that along with the basic Customs duty notification, the PLI scheme remains a positive measure for the domestic solar OEM industry so as to improve its competitiveness to some extent. “However, the clarity over the quantum per MW output, disbursement and eligibility criterion is still awaited. Given the large scale with integrated operations, technological strengths and various cost advantages for OEMs in China, import competition for domestic solar module players would however continue to remain significant and it is likely that over the near to medium term, dependence on module imports is unlikely to reduce materially for solar IPPs in India,” he points out.

After talking to stakeholders, one thing is clear: the push is there, but all incentives need to be intertwined in order to reap benefits. Therefore, the guidelines have to be carefully drafted, else, like many other good decisions, this also will remain on paper.