Following the U.N. climate week, India’s Prime Minister, Narendra Modi, is meeting US President Barack Obama on the 29th and 30th September 2014. According to reports (refer), one of the items on the agenda is to form a ‘working group’ that would plan the roll out of 100 GW of solar in India over the next ten years. Two key items on the agenda of this working group are likely to be: i) engagement with US institutions and companies to set up manufacturing capacities in India that will help meet India’s future demand domestically; and ii) financing India’s ambitious solar plans.
- “Make in India” campaign, launched last week, can be a win-win for both the countries
- Financing support from the US could lead to more rapid solar growth in India
- An adequate policy framework in India can support solar and make it more price competitive on a large scale
Encouraging US companies to set up solar manufacturing in India is in line with Modi’s “make in India” campaign, launched last week. This initiative can be a win-win for both the countries. India has recently declined to impose anti-dumping duties on the rationale that import restrictions at this point would hamper the ambitious solar plans of the government. At the same time, the Indian government has made clear that it wishes to see a strong domestic solar industry and is willing to support its growth through measures such as domestic content requirements. The US, in the past, has been one of the most vociferous critics of Indian domestic content requirements at the World Trade Organisation (WTO). Encouraging US companies to manufacture in India is a smart way to now align the interests of all parties.
Of course, a predictable and strong Indian demand for solar has to be the cornerstone of any such agreement. Financing is one of the main hurdles to more rapid solar growth in India and, therefore, financing support from the US could be a key further piece of the puzzle. This could be backed by some sort of a sovereign guarantee from India. For India, it would lead to access to domestic manufacturing at scale and a transfer of technology – both much cherished goals for the new government. In addition, it could contribute to making Indian solar manufacturing cost competitive, so that solar growth can be achieved without paying a premium for domestic content.
While this all looks good on paper, it is important to understand that, in the end, both governments can only provide a framework to convince private US solar companies that this is a profitable opportunity. Also, India should ensure that there is fair competition amongst potential international solar investors and partners. A US deal should be a blueprint for similar agreements with manufacturers from around the world. The end goal should be to have the best solar manufacturing in India – regardless of whether the company is owned by an Indian a Chinese or an American.
However, there is a larger question hovering over all the grand statements. Announcing a solar target is easy, but investment into manufacturing as well as projects will only flow, if there is a credible answer to the question: “Who will buy the solar power and why?”. Clearly, India needs to add power capacity in the several 100s of GW in the next decades and solar is an attractive option.
