While the government has come up with several protectionist policies to give impetus to the manufacturing sector in the solar space, the deck is stacked against the smaller players who are struggling to compete with the bigger entities.

Things are looking bleak for solar micro, small, and medium enterprises (MSMEs) who are trying hard to find a way out of the financial constraints and the rising prices of commodities that have made it much harder for MSMEs to survive in this competitive environment.

In April this year, the Union Cabinet approved the production-linked incentive (PLI) program for the ‘National Program on High-Efficiency Solar PV (Photovoltaic) Modules’ to achieve gigawatt-scale manufacturing with an outlay of ₹45 billion (~$605 million).

There is a general belief that the program is meant for bigger Indian players and will not help smaller manufacturers. With the government’s push for the solar manufacturing sector, it remains to be seen how things will play out.

Increase in raw material prices – a concern for MSMEs

The increase in raw material prices has made the matter worse for smaller manufacturers.

Speaking on the increase in raw materials prices and its impact on the manufacturing segment, R Chellappan, Managing Director of SWELECT Energy systems, said, “The increase in raw material prices has put a strain on module manufacturers in terms of longer business cycles and lower inventory control with uncertainty in terms of deliveries. This has led developers to wait and watch for the prices to stabilize, move down, and not hurry to commission the projects at such high prices. As a result, manufacturers are holding higher module inventory and finally dumping the product in the market at a lower cost, thereby driving the price down and selling the materials at a loss. As a consequence, manufacturers are looking at better self-reliance and setting up their ethylene-vinyl acetate and backsheet lines.”

Commenting on the impact of the shift from M2 to M6 and up to M12 wafers, Chellappan added, “The manufacturers have already moved or are in the process of upgrading their equipment to new sizes (up to M12 – 210 mm cells). By Q2 2022, most manufacturers will shift, and only a few will run with the old line. With the equipment costs lower than before and better financing options available, most established manufacturers will not have much of a challenge in upgrading. But the smaller and unorganized manufacturers will face challenges, especially those with manual lines since new cells require automation.”

Need for a technology upgradation fund

Technology upgradation is another aspect that is of utmost importance for domestic manufacturers who are trying to meet the changing demands of the solar market and remain competitive. Technology upgradation requires investments, making it difficult for MSMEs to keep pace with the advancements in the solar sector.

“A technology upgradation fund is definitely required for all cell and module manufacturers, which must be independent of the PLI program. The resources for this fund can very well come from the vast amount of safeguard duty, anti-dumping duty, and BCD that are being collected by the government and can be funneled into the industry for technology and manufacturing line upgradation. The machinery upgradation happens every three years in this industry, which needs government support – especially for the small and medium manufacturers who are the backbone of the country’s growth, employment, and gross domestic product,” opined Chellappan.

In August last year, the Gujarat government announced its new industrial policy to boost MSMEs in the state. Currently, Gujarat has over 3.5 million MSMEs, which are a significant source of employment and form a critical part of the larger industrial ecosystem. The new policy focuses on promoting MSMEs to make them globally competitive. The MSMEs would be eligible for capital subsidy of up to 25% of the suitable loan amount of up to ₹3.5 million (~$46,755).

Speaking on the state of small solar manufacturers, Ankit Kapadia, Regional Manager at Lubi Solar, said, “A considerable amount of investments will be required for modifying the existing machinery, the possibilities of which are limited. Costs will also have to be incurred on updating the certifications in line with the product upgrades. All this is bound to push the prices up. It will be a challenge to remain competitive in the market dominated by Chinese imports. It will not be surprising to see small-scale players shut shop. A technology upgradation fund in the form of access to easy and cheap capital could help MSME manufacturers stay afloat.”

Need for MSMEs to keep pace with the changing demands

Solar cell sizes are changing rapidly, and it is a race to keep pace with the market’s changing demands. It is being argued that the current developments can bring down the levelized cost of energy by bringing down the balance of system cost considerably.

“We feel the development would push the prices of solar modules upwards. The decision from the cell manufacturers to upgrade to large cell sizes will require considerable investment by module manufacturers on the upgradation of existing machinery and require fresh costs to be incurred on getting the required certifications. The small-scale manufacturers, especially in India, face the harsh reality of incurring the cost of capital and certificates and yet remain competitive in the market dominated by imports,” added Kapadia.

There is also the question of shifting from M2 to M6 up to M12 wafers, which would require manufacturers to install new equipment. For this, infusion of new capital would be needed, which would significantly impact the MSMEs.

Looking for government to help

MSMEs are looking for government support to survive in this competitive market.

“The government should look at the statutory and regulatory aspects, which would make both upstream and downstream deployment of projects more manageable. This would involve the setting up of manufacturing plants, expansion, and approvals. For project developers, the access to land, transmission line infrastructure, and upholding the sanctity of the power purchase agreements.  Policies to support domestic manufacturing, as well as offtake guarantee, have to be strengthened,” said Chellappan.

“There is also a need for better regulation and control of the modules being manufactured and sold in the market – in terms of quality, compliance, and assured warranty. The above factors need to be looked at on the ground by interacting with MSME manufacturers instead of from a high macro level with inputs taken only from a few large manufacturers,” he added.

Speaking on the technology upgradation required to keep pace with the changing market scenario, DV Manjunath, Managing Director of EMMVEE Photovoltaic Power, said, “The situation is good as of now. There is no other alternative other than upgrading to better technology. The process is time-intensive, and an infusion of capital will be required. We are ready to meet the market demands, and there is no shortage of supply. Right now, if we shift from M2 to M6, the only way out is to upgrade and be ready for the change. Many players have already done it, and we are also in the process of doing so. The government should continue with the safeguard duty until BCD is enforced next year. It will help in protecting smaller players. M6 will be there for at least five to seven years, and it is the new norm.”

As more prominent players gear up to meet the market demands and compete with the Chinese imports, the scenario is different for MSMEs, who are fighting a battle for survival in this highly competitive environment.

“While the government can ensure a level playing field and policy support, it will not be able to prop up every manufacturer that decides to enter the ultra-competitive solar manufacturing sector. Manufacturers attracted by the solar industry’s market potential have to assess the risks that come with it seriously,” said Raj Prabhu, CEO of Mercom Capital Group.