In July 2018, the Directorate General of Trade Remedies (DGTR) recommended a safeguard duty on cells and modules imported from China and Malaysia, which upended the solar supply chain in India.

A 25% safeguard duty was imposed for the first year, which is to be followed by a phased down approach in the second year. In the first six months of the second year, a safeguard duty of 20% will be payable by exporters to India, and in the latter half of the second year, exporters will pay a safeguard duty of 15%.

The demand for domestic solar modules has grown since the imposition of the safeguard duty. Before then, Chinese module manufacturers were giving domestic suppliers intense competition for large-scale utility projects as well as distributed solar projects. That may not be the case anymore.

Interestingly, domestic solar module manufacturers expressed their discontent months after the safeguard duty imposition. They stated that the policy had failed to achieve the desired objectives of protecting domestic manufacturers from a sudden surge of imports since the safeguard duty was imposed for only two years, and the implementation period of utility-scale solar projects is 18 to 24 months.

However, the industry dynamic appears to be changing, at least for smaller distributed solar energy generation projects. Mercom spoke with rooftop project developers and engineering, procurement, and construction (EPC) companies, which disclosed that since the imposition of safeguard duty, quality Indian modules are being offered at similar or even lower prices than those offered by their Chinese counterparts.

According to these companies, Indian modules have not only become cost-competitive but also more appealing from a logistics standpoint for distributed projects which require a shorter development period.

Mercom reached out to Saif Dhorajiwala, one of the founders of Fourth Partner, a leading rooftop solar company. Regarding cost competitiveness of Indian modules, Dhorajiwala said, “It has become feasible to offer domestically manufactured modules, as they can now compete with products from international suppliers. However, we, as a company, are only offering these products for our projects after implementing strict quality control measures. Sourcing Indian modules is also more efficient for us, as it can help in reducing lead time for projects, which is typically between 2-3 months.”

The rooftop solar subsidy program, which applies to buildings under residential, institutional, and social sectors, continue to be a tailwind for domestic module suppliers. Addressing the topic, Tarun Khurana, a partner at Loop Solar, a Gurgaon- based residential rooftop solar company commented, “The share of domestic modules has increased in the small-scale rooftop solar market since the imposition of the safeguard duty; the lower cost of domestic modules, when compared with imported ones, has been the primary reason. However, it is important to note that the residential solar market had always been dominated by domestic modules due to the domestic content requirements under the subsidy rules.”

Another source from a rooftop solar company told Mercom that before the safeguard duty was introduced, 70-80% of their projects were deployed using imported modules, this has been now reduced to almost 50%. Rooftop installations are generally constructed in two to three months, and installers need a consistent but smaller quantity of modules. Over the last 12-14 months, the Indian rupee has also depreciated by around 5-6%, further increasing the cost to import modules.

The safeguard duty, coupled with rupee depreciation, means that importing small quantities of modules is no longer viable, due to which rooftop solar companies have started to actively procure Indian modules instead.

According to several small manufacturers, the larger Indian module manufacturers are very aggressive when it comes to pricing. Even smaller manufacturers are getting competitive with small orders. Many are scaling manufacturing capacities, and approximately 1 GW of module manufacturing capacity expansion has been announced by domestic manufacturers in the first half of 2019, according to the Mercom India Market Share Tracker.

The other major factor that has created a market for local manufacturers is the domestic content requirement from government tenders.  Several smaller manufacturers told Mercom that the current policies are favorable towards large manufacturers, and they are finding it very difficult to compete against these companies in the DCR category.

The impact of the safeguard duty is not as effective when it comes to utility-scale solar projects, as developers continue to procure Tier-1 Chinese modules considering their bankability and acceptance by investors and lenders.

“While it is good to hear that local manufacturers are doing better since the imposition of the safeguard duty, it is concerning that the domestic manufacturing industry is heavily dependent on and expanding based solely on duties, which is very risky, said Raj Prabhu CEO of Mercom Capital Group. “Conducive rooftop solar policies by the government will also help domestic manufacturers as installers find it more convenient to procure modules locally.”

Earlier this year, Mercom analyzed how the imposition of safeguard duty on solar cell and module imports from China and Malaysia was proving to be a bigger issue for local manufacturers than was perhaps anticipated.

Moreover, the Indian government seems to be doubling down on the domestic solar module industry – in July 2019, the Ministry of New and Renewable Energy (MNRE) issued guidelines for the implementation of the KUSUM program for India’s farmers to solarize agriculture. The program, which envisages the installation of solar energy capacity of 26 GW by 2022, also mandates the use of domestically procured modules.

Image credit: Bluebird Solar [CC BY-SA 4.0]