Over the past year and a half, the government has launched several policy measures to support the domestic solar manufacturing industry — these range from the imposition of a safeguard duty to solar programs that mandate procurement of locally sourced products. However, many companies in the solar Micro, Small, and Medium Enterprises (MSMEs) segment have expressed to Mercom that these policies have created more hurdles rather than simplifying issues. These are companies that operate as manufacturers of solar modules, ancillary products, system integrators, and raw material suppliers in the solar photovoltaic (PV) space.
Government’s protectionist policies increasing costs for local manufacturers
To reduce the dependence on imported solar products and help local manufacturers, the government levied a safeguard duty of 25% on solar imports from China and Malaysia. The safeguard duty has been in force since July 30, 2018. Since the imposition of the safeguard duty, imports have consistently dropped. In Q1 2019, India imported solar modules and cells of approximately $650 million (~₹45 billion), a decrease of 40% YoY from the $1.1 billion (~₹76 billion) worth of solar cells and modules imported in Q1 of 2018. However, MSME module manufacturers have not benefitted.
Though there is no official data, Mercom has been tracking about 140 module manufacturers in India. According to Mercom’s market share tracker, of the 140 module manufacturers, only about 40 have a manufacturing capacity of 100 MW and above.
There are only about 16 solar cell manufacturers in India, according to Mercom’s market share tracker. Of the 16 manufacturers, only nine have a manufacturing capacity of 100 MW or higher. Again, most of these cell manufacturers also have module manufacturing units which utilize most of their cell production.
“We are facing challenges because of the DCR (domestic content requirement) policy; there just isn’t enough cell manufacturing capacity in India. The large integrated manufacturers are using their cell manufacturing capacity for their own module lines, which has to lead to a scarcity of domestically manufactured solar cells. If the government is serious about giving module suppliers in India a boost, they need to relook at DCR,” said Rajesh Joshi, director at JJ PV Solar Gujarat.
To add to the woes of domestic manufacturers, in February 2019, the Directorate General of Trade Remedies imposed an anti-dumping duty of $114.58/metric ton on the import of textured tempered coated and uncoated glass from Malaysia for five years. In 2017, the Ministry of Finance had imposed an anti-dumping duty on tempered glass (solar glass) imported from China in the range of $64.04 per metric ton to $136.21/MT. According to sources, this has resulted in a monopoly for glass manufacturers, with filing a petition requesting the imposition of anti-dumping duty. For local solar manufacturers, this has led to an increase in the costs of another raw material.
Further, in April 2019, the government imposed an anti-dumping duty on the ‘Ethylene Vinyl Acetate (EVA)’ sheets for solar modules imported from China PR, Malaysia, Saudi Arabia, and Thailand for five years. While the government justified the imposition of a safeguard duty to encourage domestic manufacturing, the levy of anti-dumping duty on raw materials translates into manufacturing cost increases.
KUSUM and CPSU schemes have potential but also many loopholes
In February 2019, the government introduced the Kisan Urja Suraksha Evam Utthaan Mahabhiyan (KUSUM) program. The program has been divided into three components and aims to add a solar capacity of 25,750 MW by 2022. The Ministry of New and Renewable Energy (MNRE) has specified that it is mandatory to use domestically manufactured solar modules with locally made solar cells under this program. The balance of system (BoS) also needs to be manufactured in India.
In March 2019, the second phase of the Central Public Sector Undertaking (CPSU) program was launched to set up 12,000 MW of grid-connected solar power projects for self-use or use by government entities. Domestically manufactured solar cells and modules are mandatory initially under this program. MNRE may, in the future, include wafers, ingots, and polysilicon manufactured in India to the list. However, these programs have not yet translated into any meaningful gains for MSMEs operating in this domain.
Stakeholders from the MSME segment that Mercom interacted with told us that there are various operational challenges posed by the policies introduced by the government. According to our sources, the eligibility criteria and costs to participate in some programs such as KUSUM are prohibitive.
Manish Gupta, founder, and director at Insolation Energy and President, North India Module Manufacturer Association (NIMMA), stated that “Policy has been a big challenge for the MSMEs. Whether it is the solar pumps or rooftop solar projects that mandate domestic content requirements, they only favor the bigger manufacturers. EESL announced a tender for 175,000 solar pumps, but only manufacturers of pumps and modules could participate, giving no opportunity for SMEs or MSMEs. To participate in one cluster out of the 13-14, the bid bonds that are required amount to ₹32.5 million ($460,000), the minimum eligibility is ₹500 million ($7 million) in turnover over the last three financial years. The bank guarantees are huge, the working capital requirement is high, and there is also a unique clause that the bills will be entered for processing the payment only after 1,000 solar pumps are installed. So, it is evident that we have to invest a huge sum of money to participate.”
Although the government intends to boost domestic module manufacturing, the policy restricts Indian manufacturers from sourcing imported cells.
“Solar module manufacturers in the MSME sector are bleeding, and in the next 4 to 6 months, they could go out of business because of these policies. The government has to restrict the “Make in India” clause in government tenders to only solar modules and eliminate the demand for solar cells to be locally manufactured. They should also provide a 30% reservation for MSMEs in tenders mandating domestic manufacturing,” said Manish Aggarwal, CEO of Enkays Group, a solar module manufacturer and EPC services provider.
In August 2019, system integrators of solar water pump systems raised concerns about the KUSUM program allowing only manufacturers to participate in tenders. According to the companies, they play a crucial role in the solar pump industry, and this move by the MNRE could have negative ramifications for the industry at large. Even the National Solar Energy Federation (NSEFI) stated that the domestic content requirement might hurt the KUSUM program.
Added costs for domestic cell and module manufacturers
The MNRE introduced compulsory certification of solar cells and modules, which came into effect from September 2018. According to industry sources, the certification costs are exorbitant – it takes six months and about ₹4 million ($57,000) for each module to be registered for the Bureau of Indian Standards (BIS) certification. Testing charges for every series of the solar panels is about ₹2.4 million (~$32,000), which comes to around ₹15-20 million (~$200,000- $270,000) for five to six series of panels. However, module manufacturers whose annual production capacity is less than 50 MW are exempted from BIS certification until September 2020 if they have a valid IEC certificate.
MNRE has also made it mandatory for companies to register under the Approved Models and Manufacturers (ALMM). Per the order, after March 31, 2020, only those models and manufacturers that are included in ALMM lists for solar PV cells and modules will be eligible to be used in government or government-assisted projects or projects under government programs. This is another added expenditure; the ALMM application fee is ₹5,000 ($71)/MW. Many large manufacturers of solar cells, modules, and inverters expressed concerns that these costs were very high, and the procedure was cumbersome, and it has become increasingly difficult for these companies to launch new products.
Manufacturing in SEZs
In a subsequent clarification to the safeguard duty, it was specified that solar module and cell manufacturers in India who are operating in special economic zones (SEZs) would have to pay safeguard duty on any product released into the domestic trade area. The SEZs in India were built to enhance the industrial capacity of the country, which provided them with special benefits and support, like tax holidays, single-window clearance, and lower charges on electricity, water, and other facilities.
According to a mid-sized Indian manufacturer, “Manufacturers in SEZs enjoy all privileges and export advantages compared to Domestic Tariff Area (DTA) units. These SEZs don’t pay the export duty, GST, electricity charges, and now are not even paying safeguard duty but are selling in India. The DTA units pay GST, safeguard duty, and GST on safeguard duty, and our working capital gets blocked. This has created a huge imbalance in India. The price gap between SEZ and DTA unit prices of modules is ₹1-1.5 ($0.02)/W. SEZs need to pay safeguard duty on imported cells and modules but are not paying.”
The polices that were designed to give a boost to domestic manufacturers are hurting solar MSMEs and helping only a few larger players according to the feedback from the industry. The government needs to consider relaxing tariffs and procurement norms on imported solar cells. They should also focus on providing incentives to local system integrators to participate in schemes like KUSUM instead of ruling them out.
Also, regulators will need to reconsider costs and procedures for getting solar products that are being manufactured in India certified. A small charge to cover administrative costs is understandable, but instead government agencies are treating these charges as revenue streams, which is detrimental to the industry and is increasing the cost of solar to consumers. If the large players are finding it difficult to fund certifications, MSMEs will certainly have trouble meeting these costs.
Considering the weak economic conditions, it is vital to boost MSMEs and help them create jobs instead of pushing them towards job cuts.
Shaurya is a staff reporter at MercomIndia.com with experience working in the Indian solar energy industry for the past four years in various roles. Prior to joining Mercom, Shaurya worked with a renewable energy developer and a consulting company. Shaurya holds a Bachelors Degree in Business Management from Lancaster University in the United Kingdom.