Can China Help India's Solar Industry? - Current Affairs 2018

Table of Contents

BASICS

•In recent years, India has been adding thousands of megawatts of solar power capacity which has led to record-low tariffs.

•But this boom is riding on an uncomfortable truth: poor quality. The solar modules or panels that form the industry’s backbone are sub-par and the many plants mushrooming across India are flawed in their construction,besides being poorly maintained, according to a study by PI Berlin, a German technical advisory firm.

NOTES

• “The Indian market is one of the most profitable yet risky for project developers and investors in photovoltaics (PV or silicon-based solar panels).

• While large-scale projects of over 100 megawatts (MW) are now common, the investment risks caused by the climate, poor installation, and lack of proper maintenance is on the rise,” PI Berlin said in a statement.

TARIFFS ON CHINESE SOLAR PANELS

• The government has imposed a safeguard duty (SGD) on solar cells and modules from China and Malaysia, effective 30 July

• About 85% of India’s solar cells come from both countries

• The argument for such a trade intervention is the rising “dependency” on China on one hand and economic and employment loss on the other

TARIFFS COUNTERPRODUCTIVE

• From an environmental, economic as well as (energy) security standpoint, such tariffs are unfortunately counterproductive

• India’s current production of solar cells and modules is much less sophisticated and not competitive enough to replace the Chinese product

• Catching up with China would require tremendous capital investment—with no promise of return as the decreasing prices further reduce profit margins

• China can offer low prices due to economies of scale

NOTES

• Germany’s solar industry has already experienced this conundrum

• Once prosperous and driven by subsidies, it could not keep up with China’s low-cost production

• It has the same problem with another technology too

• Today, nine out of 10 batteries are produced in China, South Korea or Japan

IMPACT ON EMPLOYMENT

• Import tariffs will raise the general price levels for solar cells and solar photovoltaic power plants, the number of installations will drop and employment will be affected

• Solar cell and module production is a highly automated process, which requires high-end precision machines rather than headcount

• The real job potential is in installation and maintenance

• It is this field which will be negatively affected

CONSUMERS WILL ALSO SUFFER

• Ultimately, the consumer will pay the premium

• Higher energy prices drive costs while lower energy prices drive the economy

• A growing economy increases energy demand—and prices if energy supply does not grow accordingly

• An import tax on solar cells ironically undermines India’s own magic formula for the energy transition

• India wants an effective carbon emissions reduction along with economic development and electrification of the country

INDIAN COMPANIES – EXPANSION PLANS

• Meanwhile, industry experts estimate that the domestic cell and module manufacturing capacity which currently stands at around 5-6 GW, can grow to 8-9 GW if domestic players realise their plans for capacity expansion.

• Adani Solar, has earlier this year announced plans to scale up its modules and cells manufacturing capacity from the current 1-2 GW to around 3 GW in the next 2-3 years.

• Tata Power Solar currently has a production capacity of 400 MW for modules and of 300 MW for cells.

IMPORTS CAN CONTINUE FROM CHINA

• Instead of a threat to India’s security and economy, China’s subsidized solar sector can be seen as a gift

• China practically pays for India’s energy transition, which will help to end the dependency on fossil fuels and will reduce the effects on climate and public health in the long run

• Given the chance to get the transition subsidized by another country, the Indian government’s introduction of the SGD seems irrational

• It will increase solar power rates to around ₹3 per unit, diminish employment potential, reduce power supply, and drive up energy prices