Will the Sun Shine?

It’s not just the budget allocation; the solar industry needs streamlining of operational policies as well. This article takes a look at the industry expectations and demands ahead of the Union Budget 2013. 

The Budget session has started and speculators are running amuck. With a projected growth rate of 5.3%, the government is reeling under the significant problems of current account deficit and the fiscal deficit. Notwithstanding these twin problems, the government needs to find ways to enable fund allocation for Phase Two of the Jawaharlal Nehru National Solar Mission (JNNSM) to maintain the momentum on investments in renewable and clean energy and progress on country’s energy security front. 

While the government tries to check inflation by rolling back diesel and petrol subsidies, this news also bodes well for the renewable sector, which will gain from price competitiveness as dirty energy becomes more expensive. Considering the fact that India witnessed a power shortage of around 17000 MW last year, energy security needs to be a top priority to enable and boost economic activity. With finite resources getting more and more expensive, and the threat of climate change dangling above the world’s neck, it is imperative to invest more in renewable energy; to secure power for the teeming millions left without it and do so sustainably.

Shubhra Mohanka, Director at Solid Solar, says, “Government of India in a bid to reduce the fiscal deficit has been eyeing to cut down on subsidies and delay the phase two of JNNSM. On the contrary, the activity of JNNSM- Phase 2 should be kept constant and solar should be made into use so as to aid the smooth running of all economic activity."

Echoing similar sentiments, Hitesh Doshi, Chairman of Waaree Groups, feels that the large subsidy doled out by the government to fossil fuels has strained the government’s finances. “By adequate renewable energy solutions across the country, the 30% loss of transmission & distribution of power can be reduced considerably. By not addressing the large subsidies such as available on diesel & delaying NSM, we are burdening our aspirations towards a sustainable future and in consequence causing deficit & overall losses to the country’s economy”, he says.

The empty coffers of the government’s treasury have meant a delay in the allocation of funds under the Phase 2 of the JNNSM. While the phase 1 of the JNNSM is generally perceived to have been a success, the phase 2 has been rather ambiguous with regard to timelines. James Abraham, CEO of SunBorne Energy says that even now, there is a lack of clarity on the framework and timing of Phase 2. “Critical policy positions, such as domestic content, bundling, viability gap funding etc are still being debated. For Phase 1, our industry built-up capacity for development, EPC, and operations. We cannot afford to let it go to waste”, he says.

Free Trade or Protectionism?

Recently USA filed a complaint with the WTO against India’s solar mission policy which mandates domestic content requirement (DCR). Under Phase 1, only modules for solar PV based on crystalline silicon were to be procured in India. It left out thin film technologies from its ambit – flooding the Indian market with the much cheaper, easily available, internationally made thin film modules. This was also coupled by the fact that the Export-Import Bank of USA provided cheap financing for project developers if they used thin film technologies. About 50% of the projects in batch 1 used thin film and 70% in batch 2. 

By bringing thin film under DCR, India is aiming to strengthen the fledgling Indian manufacturing industry. Mr. Jagat S Jawa, Director General at Solar Energy Society of India, says that the manufacturing industry in India has been severely hit because the market has been flooded with cheap foreign products. “I welcome the anti-dumping duties on foreign goods. Our manufacturing base is very strong, we make international standard modules and I am sure we will be able to meet the demand”, he said.

Mohanka of Solid Solar also supports the decision to impose anti-dumping duties on cheaper imports and believes this will boost Indian manufacturing. “The U.S. Commerce Department itself has set anti-dumping duties ranging from 18.32% to 249.96% on solar-energy cells imported from China. Indian solar manufacturers should also call for anti-dumping duties as high as 200%”, she says. Doshi of Waaree Groups highlights that even developed countries like Italy provide better FITs for products made in Europe & appropriately decide their import duties, it is natural for an emerging economy like India, plagued by unemployment, growth needs & energy crisis, to focus on new technology advancements to reduce imports further & develop cost effective capacious solutions aggressively.

This outlook is not necessarily shared in entirety by everyone in the Industry. Many observers point out that the price of solar crashed dramatically in the last two-three years primarily due to cheaper /competitive imports. While supporting India’s nascent manufacturing industry should be high priority, focus should be on building the infrastructure of the industry so that the sector is able to compete with the international markets. . Import duties would only give rise to higher tariffs and increase the subsidy burden in Phase 2 – a point highlighted by many free marketers. Abraham of SunBorne says that domestic content requirements simply closes markets to competition and moves the subsidy into the hands of a few. “Taiwan didn't become the center of global chip manufacturing with domestic content requirements or import duties. Instead, they invested in the necessary infrastructure and financing to support large-scale, low-cost plants. We need to support our local industry the same way by providing preferential low-cost financing, investment tax credits and establishing large-scale infrastructure with low-cost power”, he feels.

Under the NAPCC, India has a goal to achieve 15% share of renewables in the energy mix by 2020 and 30,000 MW of renewable capacity by 2017. This target while laudable is also an extremely tall order. The JNNSM has done much in the way of mainstreaming solar energy in the country and it would be a shame to not continue the momentum that has been generated. Considering that the budget allocated last year to renewables was only 50% of the Planning Commission’s recommendations and 25% of the MNRE’s proposal, one hopes that this budget will not be a cause for further disappointment. The MNRE would also do well to clear the air of ambiguities and come up with clearer policy positions.

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The author, Anindita Chakraborty, is part of the Sustainability Outlook team.