Indian Domestic Manufacturers

Mercom recently broke the news that the Ministry of New and Renewable Energy (MNRE) has proposed developing 7.5 GW of solar by 2022 using domestically manufactured solar cells and modules during the second phase of its Central Public-Sector Unit (CPSU) program – an extension to an earlier JNNSM program . The proposal comes amid the agreement to end the DCR category by December 14, 2017, following the WTO ruling against India.

With the DCR market ending in December, some domestic Indian Manufacturers unable to compete with cheaper Chinese imports filed an anti-dumping petition that led the Directorate General of Anti-Dumping (DGAD) to initiate an anti-dumping investigation into solar imports from China, Taiwan, and Malaysia.

“If this program gets approved it would be a significant boost for local manufacturers. But, government support for local manufacturers has generally been weak, which is what has led them to file the anti-dumping case,” said Raj Prabhu, CEO of Mercom Capital Group. “Future installation growth in India depends on how all this is handled.”

Likelihood of Approval

We have seen several proposals before and the questions is: Can 7.5 GW get approved considering the cost involved? MNRE officials appear confident that the program will be approved.

A senior official at MNRE told Mercom, “This proposal will be accepted 100 percent; this is not a replacement for the DCR category but rather an extension of a separate program on the merits of the satisfactory achievement of set milestones. Nothing can replace the DCR category – it will be scrapped according to WTO rules. But this will help fill the gap left behind.”

According to the India Solar Quarterly Market Update, the proposed program will be an extension of the JNNSM – Phase II Batch V program, which set up a target of installing 1,000 MW of grid‑connected solar PV projects with a mandatory DCR clause. The solar projects would be installed by CPSUs, India government organizations for their own use, or through third‑party sale or merchant sale entities. MNRE approved the entire 1,000 MW to be developed by 17 CPSUs from seven ministries.

An MNRE official related to the CPSU program told Mercom, “As of the end of July, out of the 1,037 MW that have been tendered under the first stage of the CPSU program, over 750 MW have been commissioned and the remaining capacity will be commissioned before the program deadline in 2018.”

The MNRE official added, “If targets are met, that implies the program is running on track and there is no waste or underutilization of funds; this has prompted us to propose 7.5 GW under Stage II. This also demonstrates the government’s ability to execute. In the end, Indian manufacturers will also be assured a market for the next four years or so.”

Will developers bid for DCR projects?

In the recent past, developers have been reluctant to bid for DCR projects due to their higher costs while off-takers have sought the lowest bids. Domestically made modules cost 10-20 percent more than imported Chinese panels. Last year, MNRE called a meeting with solar industry representatives to address their concerns regarding DCR. In the meeting, it was discovered that there was a general unwillingness on the part of some states to participate in these projects as they were too expensive, and developers were not interested in DCR projects either.

In May, the National Thermal Power Corporation (NTPC) talked about meeting its entire auxiliary power requirement of about 2,000 MW through solar. That auxiliary power is used for running projects, servicing equipment, and for general self-use. NTPC had said that, considering a project load factor of about 19 percent for solar, the agency would need almost 12,000 MW of installed solar capacity just for itself.

An official working with NTPC told Mercom, “This new proposal shows that the government is willing to spend funds to meet the targets. If the proposal is accepted, the government will have to set aside a minimum ₹75 billion (~$1.2 billion) to fund the projects. It will also boost the morale of local manufacturers by ensuring a set market for them.”

Once approved, the program would ensure that an average of 2 GW of solar projects will utilize indigenous modules and cells every year until 2022, added an MNRE official. The incentives and other regulations would be same as the first stage of CPSU program.

How about WTO rules?

India lost the DCR case at the WTO last year and must officially end the DCR category by December 14, 2017. So, it is confusing how a new DCR program can be implemented without conflicting with the WTO.

According to Article III:4 of the GATT 1994 and Articles 2.1 and 2.2 and paragraph 1(a) of the Illustrative List of the TRIMs Agreement, as stated by the WTO, to comply with DCR rules the procurement must be “by governmental agencies”; the procurement should be of products purchased “for governmental purposes”; and the products purchased should not be procured “with a view to commercial resale or with a view to use in the production of goods for commercial sale”.

When asked if the new program would comply with the WTO ruling against the DCR category, another MNRE official close to the program emphasized that CPSU means government control, government funding, and government money. “So, if the government wants to start a project on its own (government-owned) land, its own building, I am not talking about any other entity, just government-owned — it has the right to procure from anywhere. We are not violating or circumventing any laws or regulations.”

If this program is approved it will have to be carefully implemented to comply with the WTO ruling. Strictly using power for meeting auxiliary power requirements could be a way to do it.

Will this program help thwart the anti-dumping case?

The office of the Directorate General of Anti-Dumping & Allied Duties (DGAD) initiated an anti-dumping investigation on imports of solar cells and modules from China, Taiwan, and Malaysia on July 21, 2017.

However, if you go back to 2014, an anti-dumping levy was not applied by the Ministry of Finance despite a recommendation from the Ministry of Trade to do so, because the ensuing WTO case changed the calculus.

When asked whether the move to allocate another 7.5 GW under the CPSU program would thwart the anti-dumping case, an MNRE official said, “The anti-dumping investigation is underway and to date, there have been no objections or representation against the petition received from any stakeholders. The issues that trouble local manufacturers most are being addressed by DGAD’s office. Do not consider this [extension of CPSU program] in the same light as a launch of DCR category in India. The main target of this program is to push the market toward its 100 GW solar goal by 2022. For local manufacturers, there are other support systems like MSIPS policy and DGAD.”

It is clear that the government does not want to confuse the new 7.5 GW CPSU program with other cases, but each of these decisions are completely interlinked.

Image Credit: SolarWorld