The domestic content requirement (DCR) category, the mandate for solar projects in India to utilize domestically manufactured solar modules and cells, was instituted in the Jawaharlal Nehru National Solar Mission (JNNSM) from the beginning of 2010 in an effort to create a healthy and robust indigenous manufacturing base and to elevate India’s status as a solar hub. But due to constantly changing market dynamics and the rise of China as the world’s manufacturing center, the DCR category is all but done with DCR tenders almost at a standstill.

The DCR policy was always at risk of running afoul of WTO rules, but the government kept pushing it to protect local manufacturers. It was always a balancing act, protect local manufacturers and pay a higher tariff, or let developers purchase modules from abroad and bring tariff rates down, to save the government and consumers millions on power purchase costs.

For solar projects selected in the first Batch (during FY 2010-11) of the JNNSM policy, it was mandatory for projects based on crystalline silicon technology to use modules manufactured in India. This was also true for solar projects selected in the second batch during FY 2011-12, but there was a clause that stated PV modules made from thin film technologies or concentrator PV cells could be sourced from any country.

According to Mercom’s India Solar Project Tracker in FY 2010-11, 150 MW of solar was tendered, of which 140 MW were auctioned under the DCR category (NSM Phase-I, Batch-1). In FY 2011-12, 350 MW of solar was tendered out of which 330 MW were auctioned under the DCR category (NSM Phase-I, Batch-2).

In FY 2013-14 under NSM Phase-II Batch-1, the Solar Energy Corporation of India (SECI) tendered 750 MW of solar: 375 MW under the open category and 375 MW under the DCR category. This was the turning point where DCR requirements started trending down.

Developers realized that they could increase profits by sourcing material under the open category, stated a Solar Energy Corporation of India (SECI) official. The result was seen the next year when a total of 3,000 MW was tendered under NSM Phase-II Batch-2, but DCR projects accounted for only 400 MW. The share of DCR projects tendered versus solar capacity has been gradually declining ever since. Out of the 2,510 MW of solar tendered under NSM Phase-II Batch-3, only 200 MW fell into the DCR category. Under NSM Phase-II Batch-4, 225 MW of DCR projects were tendered, out of which only 25 MW were auctioned.

From the beginning of 2011 through the end of 2012, module prices fell from $1.80/W to $0.65 /W, a 65 percent drop. Chinese manufacturers captured most of the global market at the cost of manufacturers elsewhere, including Indian manufacturers, with cheap Chinese modules flooding the market, developers did not need to buy expensive domestic panels anymore. According to Mercom, Indian non-DCR modules typically cost about 10-15 percent more compared to Chinese modules. Auctions are getting highly competitive, like the one seen in Madhya Pradesh for the REWA solar park, where tariffs dropped below Rs.4 (~$0.059)/kWh, reaching a record low of Rs.3.30 (~$0.049)/kWh (levelized). Recently, the 250 MW Kadapa Solar Park auction touched a new low of Rs.3.15 (~$0.0487)/kWh, which was another five percent lower than the REWA auction. These tariff rates are only viable if Chinese panel prices continue to fall every quarter. The days of the government willing to paying more for domestic modules may be done.

Under NSM Phase-II Batch-5, 1,037.26 MW of solar were tendered under the DCR category, but only 696 MW were auctioned. The National Thermal Power Corporation (NTPC) also tendered 760 MW of DCR solar under its self-owned projects program but was able to auction only 510 MW. The other 250 MW have been re-tendered.

NTPC officials were surprised when they received fewer bids for their tender. Developers are staying away from DCR tenders due to very low profit margins they said.

To boost the DCR category, the government started the Defense Viability Gap Funding program under which it is mandatory to utilize DCR modules and cells. In all, 356 MW were tendered under this program, but only 86 MW were auctioned. For these projects, a clause was later included that said if a project is being developed under an engineering, procurement and construction mode, they will be free to procure solar cells and modules from any provider.

The government also wants to encourage the use of domestic modules through rooftop solar programs. The SECI tendered 1,500 MW of rooftop solar and the entire capacity was under the DCR category. However, the tender was recently cut by 500 MW citing lower availability of rooftop space.

According to Mercom’s India Solar Project Tracker, 5,453.26 MW of solar have been tendered under the DCR category as of March 2017, out of which 3,342 MW have been auctioned. So far, a total of 1,353.5 MW of DCR projects have been commissioned and another 1,988.5 MW are in various stages of development.

The World Trade Organization (WTO) ruling against India’s domestic content policy for solar cells and modules has subdued the DCR category. “Earlier, the implementing agencies had the authority to enforce the DCR category. Now, unless the capacity tendered is for direct government use or for captive use by government departments, there is lack of enthusiasm for DCR with implementing agencies,” stated an MNRE official.

When asked about the future of DCR tenders, officials at various government agencies are of the same view; if the government mandates DCR modules for railways, airports, ports, and other sectors (transportation sector, coaches, traffic signals, bus stops), the DCR category can have some market share, but not like the earlier years when capacity tendered under DCR was at par with Open category.

What will happen to India’s domestic manufacturers going forward? According to Mercom data, domestic operating manufacturing capacity is almost 6 GW in a 10 GW market. If DCR only makes up about 10-15 percent of the market, how will domestic manufacturers cope? On top of this, domestic manufacturers continue to announce capacity expansion. Considering where the market is today, they will find it is extremely tough to compete with the Chinese players on price. Currently, there are no government programs to help domestic manufacturers. Maybe this will force domestic manufacturers to reinvent themselves to capture a larger piece of the market share.