Weekly Update: NSM domestic content batch of 375 MW caught in crossfire between the developers and manufacturers

National Solar Energy Federation of India (NSEFI), one of the several solar industry associations in India, has written a letter to the Ministry of New and Renewable Energy (MNRE) suggesting that domestic manufacturers do not have adequate capacity to supply the 375 MW of capacity allocations under the domestic content requirement (DCR) category of batch one of phase two of the National Solar Mission (NSM). This is despite the fact that manufacturers had claimed to be able to meet demand before the bidding process.

  • NSEFI claims that domestic manufacturers are “unethically” raising module prices now that the bids are over
  • Indian manufacturers allege that NSEFI has not consulted with them before sending out the letter
  • HR Gupta from IndoSolar has denied any increase in module prices

NSEFI claims that they are “cartelizing” and “unethically” raising module prices now that the bids have been submitted (refer). The letter also claims that lenders are largely unwilling to offer debt to DCR projects due to a perceived quality issue. With India defending itself in a World Trade Organization (WTO) case against DCR, this is moreover “denting the country’s image severely”.

The federation has suggested that if the timeline for commissioning is extended to 24 months from the existing 13 months, it would allow manufacturers to bridge bottlenecks in production and enable lenders to better establish the bankability of various Indian suppliers.

Indian cell manufacturers allege that the NSEFI has not consulted with them before sending the letter. Based on BRIDGE TO INDIA’s discussions with HR Gupta, Managing Director, IndoSolar and Ajay Goel, CEO, Tata Power Solar, it seems that both manufacturers are not in favor of any extension and are confident that they are in a position to supply the required capacity in time.

The manufacturers argue that their ability to supply in time has been a topic of debate for over a year now and the MNRE has been convinced of their ability to supply before the NSM tender was released. The developers who have opted for the domestic content batch have quoted a Viability Gap Funding (VGF) component based on the same market information as is available now. The funding translates into an additional cost for modules and any risks associated with their procurement at around INR 9 (USD 0.15Wp). The only reason why the government is paying this additional component is to support domestic manufacturing. In that context, developers who have bid for the DCR component need to realize all the constraints, including the fact that they would need to place their orders early enough for the manufacturers to be able to supply in time.

HR Gupta from IndoSolar also denied any cartelization and said that there has been no increase in module prices. They are offering the same prices to developers as they were in December 2013, when developers approached them for term sheets before the bidding.

BRIDGE TO INDIA believes that there is no new information available in the market to warrant a sudden, retroactive change in the terms of the tender. Developers who had bid for the domestic content batch knew what the constraints would be. Even if NSEFI has valid points, these should have been raised before the tender. There is little sense in raising these points now.

In the longer term, a DCR in its current form is unlikely to change the structural deficits in competitiveness of Indian manufacturers. The only comfort that the DCR can provide is some breathing room. This alone cannot be a policy objective. If India wants to have a domestic manufacturing ecosystem for solar modules, it needs to develop a long term strategy for the creation of stable domestic demand and give investors and banks the confidence to invest into solar manufacturing and innovation.

1 comment

  • How does SECI/MNRE insure that only domestic cells are used in the domestically produced modules?
    There is no way to inspect a finished module and ascertain which cells or batch of cells was used in the production of the particular module.

    DCR must be scrapped and the federal solar policy should be a open policy.

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