Former Prime Minister Atal Bihari Vajpayee’s timely legislation in the form of the Indian Electricity Act, 2003 and Gujarat’s earliest adoption of the Act of any Bharatiya State and its visionary Solar Policy proved to be exemplary and kinetic regulatory reformative transformations that led to the huge strides in renewable energy adoption that Bharat has achieved in spite of Nehruvian Socialist legacy and political challenges and bottlenecks that China hasn’t had to confront. Next to scientific breakthroughs, such positive public policy breakthroughs can bring about paradigm shifts in a nation that can trigger a wave of scientific and technological enterprise, as we now know they did accomplish, considering the many start-ups active in the renewable energy sector.
According to data available from the US Energy Information Administration, the first solar power capacity was added in Bharat in 2002, i.e., in then PM Vajpayee’s era, with a total installed capacity of 2 MW. The Vajpayee political dispensation couldn’t hold on to the reigns of power and was supplanted by the Congress-led UPA-I in 2004. Up until 2014, Bharat had 2,822 MW of Solar Power installed capacity since 2002.
The Central Electricity Regulatory Commission (CERC) of Bharat declared the average cost of the module to be 0.48 US$/watt for c-Si technology. According to the solar tariff order, FY 2016-17 by CERC, the total capital cost of Solar PV power projects for the year is Rs. 5.3 Cr/MW for solar PV power projects. It has been estimated that by 2025, Bharat would possess a Solar PV panel production capacity of 40 GW and with partial vertical or upstream integration. This would jettison Bharat into the league of the top three solar power panel manufacturers.
The Current Status
In 2020, Bharat, having already conquered the 2022 target of 175 GW of renewable energy four years ahead of schedule, announced an even more ambitious plan of installing 450 GW of renewable energy installed capacity by 2030, of which 280 GW is supposed to come from solar power. Further, at COP-26, PM Modi announced that Bharat would possess 500 GW of “non-fossil fuel” power by 2030 and would be carbon-neutral by 2070.
The implied Maths is clear – Bharat needs to deploy approximately 25 GW of solar PV capacity per annum to meet those targets. The idea is that this scale would keep Bharatiya Solar sector competitive. Of course, meeting the target of deployment of capacities doesn’t address the technology imperative, though it does address the climate change imperative and commitment.
By 2021, Bharat had 41 GW of cumulative installed capacity of solar PVs, thus making Bharat one of the world’s top five nations in terms of annual and cumulative deployment. However, Bharat had still been struggling with the legacy of imported solar cells and solar PV modules. This was primarily because the Bharatiya solar developers, including Independent Power Producers (IPPs), favoured imported solar cells and PVs as the quality and dependability were said to be better, in their opinion.
Further, even by 2021, the Bharatiya solar manufacturing industry was also said to be deploying older-generation technology such as “BSF”. This is unremarkable as, given the fact that there is no edge in solar technology, most of the technology comes to Bharat with a lag of approximately five years or more, as a thumb rule.
Since 2014, Bharat’s annual installed capacity in solar power has seen exponential growth and now stands at 12,783.8 MW i.e. more than 4.5x the 2014 installed capacity. The extant state-of-play in the solar energy sector has largely remained focused on addition to installed capacity over the last two decades.
Exponential Explosion in Solar Manufacturing
Bharat has shown a consistent and phenomenal jump in the Solar PV manufacturing sector between 2021 and 2023. In calendar year 2021, Bharat ran a massive negative Balance of Trade in the Solar PV sector of USD 2,545 million when exports were a negligible USD 81 million and imports were a staggering 32x higher at USD 2,626 million. In the CY 2022, Bharat scrunched this negative Balance of Trade to just USD 113 million with exports of USD 553 million versus USD 666 million of imports. CY 2023 has been a breakthrough year and the tables have been turned. The Solar photovoltaic (PV) exports between the months of January and August of 2023 have swelled to USD 1,343 million and Bharat now has a USD 254 million export surplus with data for four months yet to arrive.
However, in the Solar cells sector, the trade balance has shown a significant decline. In calendar year 2021, against USD 53 million of exports, the imports stood at USD 895 million, thus translating into a negative Balance of Trade of USD 842 million. 2022, this declined slightly to USD 775 million. However, in CY 2023, the number ballooned to a Balance of Trade of a negative USD 1,383 million between January and August 2023.
Challenges in Solar PV Manufacturing
Solar PV panels account for approximately 60 per cent of the cost of a solar power project. Therefore, any rise in the price of the components, whether upstream or downstream, will impact the total project costs significantly. The cost of raw materials has a significant impact on solar PV costs, which ultimately has a significant bearing on the overall project cost, and thereby, the cost signals are transmitted to the tariff as determined by the Central Electricity Regulatory Commission (CERC), the regulatory authority. As the price of polysilicon has been falling, so has the price of Solar PV panels and therefore, ultimately, the tariffs have also been rationalized from as high as INR 7.04/kWh and INR 6.35/kWh (with Accelerated Depreciation benefit) in 2015 to grid parity levels of INR 2.54/kWh in October 2023.
The actual manufacturing capacity utilisation of Bharatiya Solar manufacturers is significantly lower than the stated nameplate capacity – most Bharatiya solar PV panel manufacturers operate at a capacity utilisation of 40 per cent – 50 per cent. Such production inefficiency is borderline criminal as it undoubtedly escalates the cost of solar PV panels and thus renders them uncompetitive against Chinese solar PV panel products.
Lack of vertical integration into upstream and downstream solar products has led to a volume and therefore a price imbalance in the manufacturing capacities of solar cells and solar PVs. There is negligible capacity in the upstream solar cells category, which implies that the cost of Bharatiya solar cells is high compared to their Chinese counterparts. Consequently, the demand for Domestic Content Requirement (DCR) solar PVs, as mandated by MNRE is low.
Further, Bharat also lags in the manufacture of ancillary products in the value chain, such as solar glass, EVA, Backsheet and even Solar Cells. Therefore, the dependency on Chinese imports for them is significant. Lack of R&D and shortage of skilled manpower is a constant challenge.
Big Independent Power Developers (IPPs) like ReNew Power are planning to enter the Solar PV panel manufacturing sector in order to save costs of importing these products through vertically integration. PSUs like Coal India are planning to set up integrated solar plants for manufacturing solar cells, wafers and PV panels.
Falling Solar Imports
90 per cent of Bharat’s Solar PV equipment imports are procured from China. In an unprecedented development that has seen a sudden explosion in the domestic solar PV manufacturing sector backed by the trifecta of PLI, ALLM and BCDs (discussed ahead in section 7 of this policy paper), Bharat has become the only nation to have reduced dependency on Chinese solar equipment in the first half of CY 2023, as suggested by data analysis done by Ember, an energy think tank. Not just that, the imports have actually collapsed by 80 per cent or by USD 2 billion whereas the total Chinese solar panel exports increased by a robust 34 per cent, in the first half of CY 2023. Further, the total solar imports of Bharat have declined by 76 per cent to 2.3 GW from 9.8 GW in the same period, according to Ember. In 2022-23, imports of upstream products such as solar cells, parts and diodes had dropped by 70.9 per cent, according to Global Trade Research Initiative.
Expansion of the polysilicon manufacturing line and glut in the European market along with a sharp fall of Chinese imports from Bharat has triggered a sharp fall in price of solar cells and PV. This in turn would adversely impact the local Bharatiya manufacturers as the Solar power plant developers in Bharat would be tempted to be driven towards Chinese imports. Don’t forget that Bharat has traditionally been the biggest export market (after Turkey) for Chinese solar cells.