Tender invitation to develop 5GW grid-connected solar power projects is latest example of India’s push to promote domestic manufacturing in solar energy sector.
India is shining – with the potential of solar power, that is.
A tender invitation to develop 5GW grid-connected solar power projects is the latest example of India’s push to promote domestic manufacturing in the solar energy sector.
The Central Public Sector undertaking (CPSU) Scheme Phase II, which is also known as Government Producer Scheme, is aimed at setting up 12GW grid-connected solar PV power projects by government producers for self-use or for government entities either directly or through electricity distribution companies. This capacity is to be added by the financial year 2022-23.
The tender follows the interest expressed by US silicon wafer-maker 1366 Technologies, First Solar and 13 other top global companies to invest around $3 billion in total to build solar equipment manufacturing facilities capitalizing on the Indian government’s initiative to push local manufacturing. In December, a government official told the news media that those companies had communicated to the government on their plans to manufacture a total of 10GW of wafer and 20GW each of solar cells and modules. The other major companies who have shown interest include Acme Solar, Vikram Solar, ReNew Power and Adani Solar.
However, the rising demand for solar manufacturing comes at a time when domestic solar energy equipment manufacturers are finding it difficult to compete due to the influx of cheaper imported modules – reflecting one of the key challenges of the industry despite the government’s keenness to facilitate investments.
“Domestic solar manufacturing industry needs expansion and fresh capital investments to cater to the capacity addition under the scheme, but large-scale investments are risky as CPSU scheme is the only guaranteed demand source. The demand for domestic modules will be limited as utility-scale developers are expected to continue to prefer cheaper and technologically advanced imported modules,” said Tarun Bhutani, project manager of power at GlobalData.
The bidding process for the new solar power projects is under Domestic Content Requirement (DCR) category – which mandates the use of solar photovoltaic cells and modules manufactured domestically. Viability Gap Funding (VGF) is provided under the scheme to cover the cost difference between the domestically produced and imported solar cells and modules.
Experts feel that such projects are extremely beneficial in fueling demand for domestic manufacturing, but more structural adjustments need to be made in the solar energy sector.
“Structural support is needed in the form of interest-cost subvention, provision for low-cost land and power, central financial assistance for setting up and upgrading capacity production, backward integration enablers and fund to upgrade technology among others. Facilitating these will help improve the competitiveness of domestic manufacturers to compete with global giants, which have large installed manufacturing bases, presence across the value chain and are more cost-efficient,” said Bhutani.
That structural support will also feed directly into the government’s bold and decisive initiatives to make India a manufacturing hub and dominates the export market - for general industries as well as sunrise sectors. Initiatives like Make in India, the introduction of SEZs, increasing export incentives, launching phased manufacturing programme (PMP) and Modified Special Incentive Package Scheme have helped India grow into a lucrative market for investment and progress. Furthermore, the Indian manufacturing sector has the potential to become a $1 trillion industry by 2025, thus powering industrial and technological growth, creating jobs, claiming export markets, generating revenue and bringing in socio-economic growth.
With demand for domestically manufactured solar cells and modules expected to be around 36GW over next three years, PM Modi said the government will offer production-linked incentives for high-efficiency solar modules as it aims to make India “a global manufacturing hub” in the renewables sector. Speaking at the RE-Invest 2020 conference, PM Modi announced that India’s green energy capacity will rise to 220GW by 2022, far higher than its 175GW target. Currently, renewables account for 36% of the country’s total capacity, at 136GW.
“There are huge renewable energy deployment plans for the next decade,” PM Modi said, adding that these are likely to draw an investment of around $20 billion per year.
The government has also moved to include solar modules as one of 10 sectors in a production-linked incentive scheme to help make domestic players more competitive internationally. The package includes $603 million of investment over five years to support the domestic development of high-efficiency PV modules as well as $2.42 billion to boost the manufacture of advance chemistry cell batteries.
The government has said the initiative “will incentivise domestic and global players to build large-scale solar PV capacity in India”.
With the right kind of demand creation – such as the CPSU tender call, along with tax incentives to attract FDI, R&D support and development of ancillary infrastructure already in progress will certainly help lift the Indian renewable energy sector and its allied manufacturing industries into days of glorious sunshine.