A recent article (refer) revealed that Indian C-si PV manufacturing is witnessing a five year low. The poor performance of domestic manufacturing in the last few years is well known. In response, the MNRE recently announced the establishment of the ‘National Institute for Solar Energy’ (NISE) to support the development of advanced solar technologies and bring benefits of cost reduction to Indian manufacturing (refer).

• Indian manufacturing is not competitive because of the lack of scale
• Solar industry in India is moving towards minimal government support
• Manufacturers should focus their efforts on increasing the scale of individual manufacturing facilities

Most manufacturing facilities in India are either lying idle or are operating at a very low utilization rate. The key reason is that Indian manufacturing is uncompetitive in terms of costs with international, especially Chinese competitors. In a recent report that compares manufacturing costs in the US and China, it has been established that subsidy is not the driver for the cost competitiveness of Chinese manufacturers. Instead, the report claims that the key reason is the scale effect (and to a lesser extent the cost of labor) (refer). BRIDGE TO INDIA believes that Indian manufacturing is not competitive because it lacks precisely that – scale. The largest manufacturing facility in India is around 200 MW, while several Chinese companies have capacities above 2GW.

In this context, while something like the NISE may help domestic manufacturers with their R&D efforts, it will not address the main problem of Indian manufacturing, i.e., the lack of scale.

With 1.75GW already installed, India has gained a good momentum for solar, with ongoing demand created by the NSM and different state policies. Solar is also already a viable option in relation to diesel and grid power in many parts of the country. This means the industry is moving towards minimal government (financial) support. Generation side obligations such as a domestic content requirement will just increase the cost of solar to power consumers and tax payers. However, costs will continue to play an important role in determining the manufacturing in industry’s future. If there is anything that the manufacturers or the government should focus their efforts on, it is to increase the scale of individual manufacturing facilities in order to create a company that can compete globally without government support. Whether it is a good investment for India to create such national champions is a different matter.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE. Sign up to our mailing list to receive these updates every week.

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