For Indian solar manufacturers battling Chinese threat, PLI brings hope

The pursuit of market share by Indian solar manufacturers amid Chinese threat is stuck in a dark tunnel. Is PLI the light at the end?

In 1989, Hitesh Doshi started a small solar equipment supply company in Mumbai. Back then, solar was restricted to government schemes and the offtake of solar equipment was limited to social welfare programmes. It was not until 2007 that Doshi’s company, Waaree Energies, could set up its first solar manufacturing plant. Around the same time, Kolkata-based Gyanesh Chaudhary, half Doshi’s age, started his solar manufacturing company, Vikram Solar.

India till then did not have a dedicated scheme or plan for solar capacity addition. In 2010, when the Jawaharlal Nehru National Solar Mission started, the country’s solar capacity was 2 megawatts (Mw). But both Doshi as well as Chaudhary bet on an impending boom.

That boom did come true. The solar sector in India jumped from 2 Mw to 40 gigawatts (Gw), the kind of growth not seen anywhere else in the world. But the rising tide did not lift Waaree or Vikram. China had already captured the market, not only in India but in Europe and the United States as well.

“Till 2021, neither the banks, nor any funds were interested to invest in Indian solar manufacturing. The reason being the China factor,” says Doshi.

Chandni Chowk to China

Close to 70 per cent of the country’s solar capacity is built on China-made solar equipment. No manufacturer, not even US companies, could match the scale and price of the Chinese. China is so entrenched in India that even the unregulated market is full of cheap Chinese solar panels.

Sovereign-funded Chinese panel makers sold solar modules at a price difference of at least 10 cents per kilowatt hour during the last decade. The cost gap has narrowed in the last couple of years, with Covid-19 redesigning the global solar supply chain and the Indian government giving an almighty push to manufacturing. But, while the cost gap narrowed, the scale gap did not.

The Indian solar manufacturing industry tried all arrows in its quiver to win the market from China. In 2014, following a dumping complaint by Indian solar makers, the ministry of commerce finalised duties to the tune of $0.48-$0.81 per unit on solar cells and modules imported from the US and China. But the Ministry of Finance did not impose them and let the proposed duty lapse. A similar application in 2018, by the Indian Solar Manufacturers’ Association, was withdrawn later.

But the Centre, in 2018, imposed a safeguard duty on solar cells and modules for two years to protect domestic manufacturing. When this duty lapsed, the domestic industry applied for a dumping case again, covering imports during 2016 to 2020. The case never came to fruition.

In 2021, as the safeguard duty lapsed, the Centre announced a basic customs duty (BCD) of 40 and 25 per cent on solar cells and modules, with effect from April 1, 2022. It was followed by announcing an Approved List of Module Manufacturers (ALMM) in which all are indigenous players. Project developers were mandated to procure from the list of companies in ALMM.

“When the government imposed the import duty, the (Chinese) material started coming through the FTA (free trade agreement) countries. Now the government has put trade and non-trade barriers on Chinese imports. There is also firmness from the Centre on pushing Make in India,” says Doshi.

When push comes to shove

The latest in the series of policy push is the Production-Linked Incentive (PLI) scheme, in which the leading players — both from the private as well as the public sector — will build 39.6 Gw of manufacturing capacity.

US-based First Solar has been operating in India since the last decade of the inception of utility scale solar power in the country. It will at last set up its first manufacturing unit in the country. It is the only foreign player selected under the PLI scheme.

In an interview with this newspaper in July, Sujoy Ghosh, vice-president and country managing director, India, at First Solar, said the manufacturing ecosystem would take time to develop in India.

“Time will be required to localise the supplies that we need, like it happened in the automobile sector in India. Once the original equipment manufacturer (OEM) comes, component systems will coalesce. PLI gives enough incentive to localise. The threshold to the local component has year-wise targets. That can be achieved when the whole supply chain is developed in India.” Ghosh said.

The sector has also attracted leading Indian companies. One of them is Adani Enterprises, which has set up a solar manufacturing facility in Mundra, Gujarat. The company some years back had even set an internal target of “25 cents by 2025” as the cost of a solar module. It is posted on the walls of its manufacturing facility.

Petrochemical-to-telecom major Reliance Industries Ltd is the latest entrant and has joined hands with foreign players to scale up solar manufacturing.

Sector watchers say the scale that will come from PLI will form the backbone of the industry. According to a government statement dated March 2023, out of the total awarded 39.6 Gw “manufacturing capacity totalling 7.4 Gw is expected to become operational by October 2024, 16.8 Gw by April 2025 and the balance 15.4 Gw capacity by April 2026”.

Silver lining or mirage?

Despite the success of PLI, there are still hurdles for India to have a vibrant manufacturing ecosystem. ALMM is postponed for one more year, which has upset the domestic companies. The BCD and the restrictive feature of the PLI scheme have upset foreign players, who were thinking of setting up shop in India or exporting more from here.

China-headquartered Trina Solar is one of them. “The PLI scheme is a good step for domestic manufacturing. But if the Indian industry wants to meet global standards, it must build strong R&D and an end-to-end ecosystem. This should include accessories, necessary equipment in the solar module supply chain — glass, metal, electrical equipment, etc,” says Gaurav Mathur, India head for Trina Solar.

Trina has an assembly unit in Chennai but no manufacturing yet in India. While Mathur says India is an important market for Trina and it is “trying to understand it”, he has qualms about the current policy regime.

“ALMM should ideally be abolished, and more foreign players should be allowed into the Indian market. Trade and business barriers need to be removed to create an open market for free and healthy competition. Indian players should be able to compete globally,” Mathur says.

It is not just foreign players; uncertainty has hit everyone in the solar supply chain. Project developers are delaying their projects as both ALMM mandate and imports are making their projects costly.

“Today, if you ask me whether it is the sunshine moment for the domestic sector — I will say not yet. ALMM, which is an important and biggest trade barrier, is getting postponed. The Indian factories are not getting more than 10 per cent market share,” says Doshi.

Mathur points out the cost of solar modules has fallen significantly in India, aided by the rapid increase in capacity addition and demand from large-scale projects and commercial players, and that it is a good sign.

Doshi seconds it but calls for policy continuity. “In the last 15 years, the manufacturing policies kept on changing and that has not helped India. I think policy stability will help us and help India become the next best solar manufacturing alternative for the world,” he says.