Augmenting domestic research, commercialising evolving technologies, unlocking export markets and making available the required capital are vital
The recent power crisis once again highlighted India’s reliance on thermal power for generating electricity. The crisis stemmed from the convergence of multiple factors such as a shortage of coal stocks, post-Covid supply chain issues and record-high prices of coal in the international market. A more rapid shift to renewables would be essential to reduce dependence on coal for meeting the increasing power demand.
However, the concentration of clean energy manufacturing in China poses supply chain risks to India’s energy transition and could threaten its energy security in the coming decades. For instance, in 2021, solar module prices increased by up to 40 per cent due to raw material shortages and supply chain disruptions in China.
To mitigate these risks, in 2021, the government announced a basic customs duty (BCD) on imported solar products and a production-linked incentive (PLI) scheme for new manufacturing capacity. Considering the strategic importance of the sector, the Finance Minister announced an additional allocation of ₹19,500 crore for the solar PLI scheme during her budget speech. The industry has responded positively, announcing a slew of plans to set up solar manufacturing capacity and integrate backwards into polysilicon and wafer manufacturing.
The push to ramp up local manufacturing could help domestic module manufacturers clock $30 billion (₹2.3-lakh crore) in revenues between 2022 and 2030 (by selling 150 GW at ₹15/Wp), according to a recent study by the CEEW Centre for Energy Finance. India must now take strategic measures to ensure that domestic manufacturers can blossom into technology leaders and compete in the global market.
Strategic measures needed
First, India must implement a national strategy to augment domestic research and development of solar technologies. Also, the local industry should be encouraged to drive this initiative with the government providing necessary policy support with a long-term approach. Developing a roadmap with targets and timelines for key innovations required in established and evolving solar technologies would need to be prioritised.
The government should also align its R&D spends with the roadmap and promote industry-academia collaborations for grant allocation. Further, the R&D budget allocated to the Ministry of New and Renewable Energy (MNRE) should be increased significantly from the current ₹35 crore ($5 million). To increase the role of the industry in technology development, MNRE should mandate manufacturers to allocate 3 per cent of their revenues to R&D. A 25 per cent subsidy on capex for laboratories can help manufacturers set up their own infrastructure.
Second, MNRE should create a route to commercialise new and evolving technologies. A failure to convert R&D spending into practical market products is a key reason behind the decline of solar manufacturing in the US. MNRE should also provide seed capital to early-stage solar manufacturing ventures by creating a government-anchored investment fund. Simultaneously, MNRE could create demand-pull for new technologies by mandating government tendering agencies to use modules developed under the technology roadmap for at least 5 per cent of awarded solar capacity. Medium-to-long-term demand visibility would help manufacturers attract financing to scale up innovative technologies and ramp up production.
Third, the government should unlock export markets through Exim Bank financing and prioritising low-carbon solar manufacturing. Indian solar manufacturers could face a demand ceiling and low utilisation rates if they rely on the domestic market alone. For developing markets, India must leverage the International Solar Alliance (ISA) network to provide financing for solar projects in member countries. International projects financed by the India Exim Bank typically use Indian products, unlocking a valuable future growth market.
Fourth, the Centre must significantly increase the amount of debt capital available to solar manufacturers in the near term. A recent CEEW-CEF study found that the plans announced by manufacturers would require $7.2 billion (₹53,773 crore) in capital expenditure alone over the next 3-4 years . However, manufacturers have been facing difficulties in raising debt to finance their projects. As a dedicated financier for the renewable energy sector, IREDA must raise the share of loans to manufacturers from the existing 4 per cent to at least 20 per cent by 2026.
Fifth, State governments should set up manufacturing hubs for upcoming factories and should also add solar manufacturing to the list of thrust sectors in their industrial policies. State industrial corporations should identify well-connected land parcels for setting up factories and should support labour requirements through skill-training and infrastructure support.
Evolution of automobile manufacturing in India over the last three decades could act as a template for policymakers. It is expected that 41,000 workers would be required if domestic solar manufacturers were to achieve their current capacity expansion plans.
Rapid solar deployment is the backbone of India’s climate ambitions and energy security. With the above-mentioned measures, India could develop a robust and technology-led domestic solar manufacturing ecosystem on the path to net-zero by 2070. A thriving local industry would also generate new jobs along with delivering on growth and sustainability.
Jain is a programme lead, and Garg was a programme associate, at the Council on Energy, Environment and Water (CEEW), an independent not-for-profit policy research institution