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Government’s target to set up 100 GW of solar plants drives local, foreign companies

Economic Times:  June, 2015

New Delhi: Encouraged by Prime Minister Narendra Modi's call to set up 100,000 megawatt (100 gigawatt) of solar plants in the country by 2022, foreign solar cell makers are setting up shop in India in partnership with local players. What is driving them is the government's target and the opportunity to export products from here to other countries. 

Local players are equally upbeat as they see an opportunity to upgrade their technology via a foreign partner and achieve economies of scale. Currently, domestically manufactured solar modules are not only expensive but also uneconomical, compared with cheaper imports, especially from China. 

"The local industry is not geared to meet the total demand and that's the immediate trigger for foreign interest. In the next one year, 3-4 foreign players can be expected to set up solar manufacturing facilities in the Indian market," said Santosh Kamath, partner and head of renewable energy sector, KPMG. 

In November, Prime Minister Narendra Modi announced a target to set up 100 Gw of solar plants from the current small base of 3,000 Mw. Since then, solar equipment manufacturing agreements between Indian and foreign companies have become a staple in the prime minister's overseas visits. 

For example, Welspun Energy signed a memorandum of understanding with China's Trina Solar to jointly set up a photovoltaic industry park to produce 500 Mw of PV cells and 500 Mw of PV modules in India during the prime minister's recent China visit during May 14-16. In the same visit, Essel Group entered into an agreement with China's energy firm JA Solar to launch a joint venture for manufacturing solar cell and modules in India. 

At Hannover Messe, the world's biggest industrial fair held in Germany this April, Vikram Solar signed similar MoUs with German company Fraunhofer Institute for Solar Energy Systems ISE and Swiss companies Meyer Burger and Centrotherm. 

Officials at Vikram Solar said foreign partners want to make inroads into India by validating their new technologies here, while Indian partners like them are looking to get the best processes to build updated production lines. 

"Within six months manufacturing configurations get outdated and it gets difficult for local players to upgrade them in time. None of the manufacturers is competitive and that's why we have Domestic Content Requirement (DCR) in projects. Local cells are 15 cents costlier than those available internationally," said Ivan Saha, president and chief technology officer, Vikram Solar. 

With such tie-ups, Saha says, he aims to make "Make in India" work in solar manufacturing space, which is currently suffering from low-confidence due to bad experiences with many local players. 

In May, Azure Power commissioned a 100 Mw solar plant under the National Solar Mission Policy with 60 Mw of Made-in-India equipment. But at a "cost" to the company. "Our goal was to demonstrate that we believe the Make in India campaign would work for the solar space. But the cost differential between local and imported equipment is 7-8%. If you compete with such high cost structures in an open tender you can't win as every 1% cost differential counts there," said Inderpreet Wadhwa, founder and CEO at Azure Power. 

Wadhwa said he would encourage foreign manufacturers to enter the country if the government sticks to its plan of tendering 10,000 Mw of solar capacity this year. 

Then there was the agreement in January between Adani Enterprises, the flagship company of Adani Group, India's leading integrated infrastructure player and leading American solar technology manufacturer and provider of solar energy services SunEdison to establish a joint venture (JV) to build the largest, vertically integrated solar photovoltaic manufacturing facility at a cost of $4 billion. But not everyone is taking the plunge right away. America's First Solar has been evaluating setting up a manufacturing facility in India but is waiting for predictability of demand before going ahead. 

According to Sujoy Ghosh, country head at First Solar (India), as of today lack of consistent and predictable demand, high cost of interest and lack of reliable power supply create headwinds to the argument on investment in local manufacturing that can be globally competitive and hence sustainable in the long run. 

"The current policy of allowing imported wafers that account for 40% of the value chain for fully domestic modules will not create true import substitution or cost competitive options locally... a clear visibility on the next 5-7 years of procurement will be very helpful for deciding investment on manufacturing/supply chain activities that will be for the longer term," Ghosh said. 

Solar market intelligence firm Bridge to India foresees installation of about 2.7 Gw of such projects in India this year. "Even though India has about 2 Gw of module manufacturing capacity, only 400-500 Mw will be sourced locally not just because these products are expensive, but also because a large part of the capacity is not functional," said Jasmeet Khurana, senior manager (consulting) at Bridge to India.