The World Trade Organisation (WTO) has rejected India’s final appeal and upheld its previous ruling against Domestic Content Requirement (DCR) provision for solar projects in India (refer). But India has already built a pipeline of around 1,800 MW of DCR projects as against operational cell manufacturing capacity of only about 600 MW. Demand from these projects should provide breathing room to the existing manufacturers and avoid any immediate repercussions.

• The Indian government has unnecessarily wasted time and money pursuing a protectionist policy and its repeal may in fact be helpful in the long-term;

• India already offers extremely attractive subsidies under M-SIPS and other such schemes but all such measures have failed to produce desired results because of the formidable challenges faced by manufacturers in India;

• India has a competitive advantage in manufacturing of solar inverters and balance of system components, the country should focus on becoming a leader in those areas;

BRIDGE TO INDIA has always maintained that investment in manufacturing cannot and should not be based on short-term protectionist measures such as DCR. The Indian government has unnecessarily wasted time and money pursuing a flawed policy. The ruling should compel it to create a more sustainable roadmap for a viable domestic manufacturing sector.

It is worth noting the challenges faced by manufacturing in India – poor infrastructure, high financing and energy costs, inflexible labour laws and unrelenting bureaucratic obstruction. To offset these, India already offers extremely attractive subsidies to manufacturers under the Modified Special Incentive Package Scheme (M-SIPS) and the Special Economic Zone (SEZ) policy. But these policies are extremely rigid and their poor implementation has failed to produce desired results.

Domestic manufacturers have therefore been seeking additional relief by way of assured production offtake, anti-dumping duties and/or production subsidies. In our view, these are all short-term measures which will do little to create a genuinely competitive manufacturing sector. The new solar manufacturing policy is proposing to provide direct subsidies to integrated ingot-wafer-cell-module manufacturers. This could be a somewhat plausible short term option if limited performance based incentives are provided to more efficient manufacturers.

However, in light of the economies of scale achieved by Chinese companies and supply glut facing the international solar equipment market (refer), investment in greenfield integrated manufacturing capacity is extremely risky in our view. In effect, there is unfortunately no easy solution to attracting large scale investments in solar manufacturing in India.

In our opinion, the government can continue to try and strategically support a few large scale manufacturing facilities. However, protecting small and uncompetitive facilities forever is not the best use of public finances. It is also worth noting that there is significant manufacturing capacity being created in other parts of the sector in India – primarily solar inverters, mounting structures and transmission systems – without any specific support. Companies such as TMEIC and Hitachi are even planning to use their Indian manufacturing units for export of solar inverters. Would it not be a better idea to first strengthen the country’s manufacturing in areas where we have some competitive advantage rather than trying to promote investments in an oversupplied sector where most large global companies are constantly stressed?

India’s Cabinet Committee on Economic Affairs (CCEA) sanctioned INR 50 billion (USD 750 million) funding for 30% capital subsidy for rooftop solar installations (refer). The subsidy will be restricted to residential, government, social and institutional segments only and the government expects this subsidy to support total rooftop capacity of 4,200 MW until this budget is exhausted.

  • The fund unavailability issues with previous subsidy schemes are likely to get resolved;
  • Significant changes to allocation process mean that the funds will be better directed to needier customers and potential for abuse will be much lesser than before; and
  • We expect significant growth in the rooftop market particularly in the government and institutional segments but the entire rooftop market will benefit from growth through overall industry learning and skills enhancement.

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Solar equipment prices are crashing in China. Polysilicon prices have dropped 30% in a month (refer), wafer prices by 20% (refer) and similar reductions are seen across the value chain. Landed module prices in India have dropped by nearly 15% in the last six months and negotiations for deliveries in Q1-2017 are happening in the range of USD 0.36-0.38/ Wp. Analysts say that price reductions are likely to continue through September (refer). The primary cause is excess supply. International module manufacturing capacity is believed to have crossed over 100 GW. In contrast, global demand is estimated at 70 GW for 2016.

  • Supply glut is likely to continue for a year and possibly longer as China is unlikely to grow out of trouble this time
  • Smaller manufacturers and those that are unable to invest in newer technologies will struggle to survive
  • Indian project developers will see a major windfall but notwithstanding major government thrust on domestic manufacturing, the country will find it difficult to attract large investments in a technology driven industry that has seen two major global supply gluts in the past five years

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BRIDGE TO INDIA published the 2016 edition of its India Solar Map last week. The report shows that India’s total installed solar capacity has grown by over 80% in the year ending June 2016 to reach 8.1 GW. Out of the 3.6 GW capacity added in this period, 75% has come from four southern states and Tamil Nadu now ranks number 1 for commissioned capacity. An additional 14,842 MW of projects are under development where auctions have already been completed. The majority (56%) of this pipeline is concentrated in the three southern states of Karnataka, Andhra Pradesh and Telangana.

  • Total commissioned plus pipeline capacity, split nearly 40:60 between central government and state government policy projects, has grown to 23 GW, +70% over last year
  • Despite growing market, project development space is getting more concentrated wherein top 15 developers have gained nearly 50% market share; most players have 2-4x more capacity under development than their commissioned capacity and their ability to scale up will be critically tested in the coming year
  • Amongst the equipment suppliers, top players include Canadian Solar and Trina Solar for modules and ABB, TMEIC and Hitachi for inverters

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Rooftop solar market in India is expected to add new capacity of 700 MW in 2016 – 15% of total solar capacity addition this year – crossing 1 GW cumulative capacity by September and growing at a sizzling 300% over last year. Significant capacity is expected to be added in the commercial and industrial segment as commissioning before the end of this month will allow investors to claim 80% accelerated depreciation (AD). The Ministry of Finance has reduced depreciation rate under the AD policy to 40% from April 2017 but more importantly, it is not yet clear if the AD benefit will be available for solar projects after this date.

  • Rooftop solar in India has maintained a 10-12% share of the total solar capacity addition, which is much lower than other peer markets
  • Private sector, primarily commercial and industrial customers, are leading the demand growth but government sector is also looking very promising
  • MNRE and various state renewable agencies are finally beginning to address key market challenges helping to unlock the market potential

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