Swamped by a flood of imports

Solar manufacturing in India started with a bang after the announcement of the Jawaharlal Nehru National Solar Mission (JNNSM, or NSM). Many players joined the bandwagon of solar cell and module producers, but four years down the line, things are not as sunny as these producers initially believed. A huge proportion of installed capacity is lying idle, capacity expansions that were to take place in the last couple of years are lying in limbo and new capacity addition announcements haven’t been heard of for almost a year now.
Originally, solar PV manufacturing in India started in the early eighties with the public sector taking the lead. Later, the private sector also joined. Early manufacturers of cells and modules depended on exports to Europe and elsewhere. This provided a good platform for Indian companies to prepare a trained workforce in manufacturing with strict quality control. However, Indian manufacturing has faced several jolts in the last two years and currently most producers are running their plants below capacity.
Manmohan Singh, India’s Prime Minister, who had launched the Jawaharlal Nehru National Solar Mission, recently proclaimed: “We will pool our scientific, technical and managerial talents, with sufficient financial resources, to develop solar energy as a source of abundant energy to power our economy and to transform the lives of our people. Our Success in this endeavor will change the face of India. It would also enable India to help change the destinies of people around the world.” Manmohan Singh’s recent speech at the National Action Plan on Climate Change (NAPCC) looks very positive. But the state of Indian manufacturing is not that sanguine. The current cumulative installed capacity of Indian solar producers is about 1,200 MW of cells and 2,500 MW of modules. But many of the manufacturers have temporarily shut down production. Those who are producing are running their plants at a much diminished capacity. The solar industry and the majority of Indian manufacturers have undergone turmoil owing to the significant downturn in the global market. As a consequence, producers have been unable to utilize their capacity as the cost of production of solar cells continues to be higher than the prevailing market prices. Mounting losses, minimal capacity utilization and debt restructuring have become the norm for solar producers in the country.
Data released by the Indian Ministry of New and Renewable Energy (MNRE) on the state of completed projects and components employed in the projects expose the sorry state of Indian manufacturing. According to MNRE data, a total of 148 grid-connected solar power plants with a total capacity of 551 MW have been commissioned under Phase I of the National Solar Mission in the last three years. Of these, 77 projects worth 391 MW of capacity (70% of the total capacity) used foreign solar cells or modules, despite the domestic content procurement conditions stipulated by the Indian government. India’s solar mission was rolled out in two batches in the first phase. For the Batch I (of Phase I) projects, the developers needed to use only local modules. The cells that made up the modules could be imported. However, for the Batch II projects, even the cells had to be locally produced. However, these stipulations applied only to crystalline cells. Thin film was excluded from these stipulations, which led to several project developers going for this technology, which is cheaper than the former.
Speaking to pv magazine , Lanco Solar’s COO Gangadhara Rao said, “During the past two years, the Indian solar market has grown and currently it is about 1.2 to 2 GW [in capacity]. At the same time, the imports from other countries have increased about tenfold during the last two years. This has led to Indian investment worth INR 100 billion in the manufacturing industry being wasted, because there is no headspace for the indigenous industry among the foreign players who are dominating the Indian solar market.” Rao added that apart from the import onslaught there are more reasons why the Indian solar manufacturing industry is not competitive. “Most of the Indian module manufacturing plants have less than 100 MW/year capacity, which compares poorly with the more than 500 MW scale plants world over. As a result Indian producers are unable to enjoy economies of scale in production and are even unable to get the most competitive raw material prices.” He further said, “Indian producers are dependent on imports of all of their raw materials. Logistics and lead times of these imports are a big obstacle in the development of domestic manufacturing. Non-existence of solar clusters and integrated infrastructure is again a big hindrance to reach economies of scale at one place, if not in one plant.” Rao also confirmed that “Lanco is setting up a fully-integrated manufacturing project for high-purity polysilicon, silicon ingots/wafers and modules in a Special Economic Zone facility in Chhattisgarh. The project is the first of its kind in India with 1,250 megatonnes of polysilicon and 80 MWp of wafer production slated for completion during 2013.” Vivek Chaturvedi, CMO of Moser Baer, blames the Chinese and other solar powerhouses for the current state of affairs: “This situation has been brought upon us primarily by dumping of PV cells and modules by Chinese and other foreign players resulting in significantly lower utilization levels across all the industry players. This has resulted in new manufacturing lines lying unopened and the suspension of technology development. Moser Baer’s solar manufacturing is also impacted by the same [thing] and we have been operating at a significantly low capacity utilization.”S. Venkataramani, CEO of Indosolar, the largest producer of solar cells on the basis of installed capacity in the country, explained how the flood of imported cells and module producers has impacted the domestic industry’s expansion plan: “We have a new production line lying at our manufacturing premises. But with demand plummeting, we will take a call on the installation of the new line after the decision of the European Union on the Chinese dumping probe in June and clarity on the DCR [Domestic Content Requirement] in the second phase of JNNSM.” Jagat Jawa, Director General of the Solar Energy Society of India (SESI) stated in an interview: “The current state of solar production in the country is alarming. The government should provide tax benefits and other incentives to the solar manufacturing industries and also have provision of domestic content for solar projects under the Jawaharlal Nehru National Solar Mission. These steps would certainly revive the indigenous solar industries.”

Clamor for government support

Indian solar cell and module producers blame the government for not supporting the domestic manufacturing industry. According to the Indian Solar Manufacturers Association (ISMA), domestic manufacturing is currently undergoing one of its severest crises and many units are on the brink of a complete shutdown.
The association is lobbying hard for antidumping duty on imports and greater policy support for indigenous products. During a media briefing in the first half of April this year, ISMA said it has asked the government for a clear policy for the domestic solar industry. The association is clamoring for a DCR for projects in the second phase of the national solar mission. ISMA has 25 members including some of the largest solar producers such as Lanco Solar, Moser Baer and Indosolar.
According to ISMA, it has made its own inquiries into five Chinese, three Taiwanese, two Malaysian and one U.S. company dumping solar power equipment in the country and forwarded the information to the Indian commerce ministry to take appropriate action.
S. Venkataramani, General Secretary of the association (and CEO of Indosolar), stated in his presentation in the ISMA briefing that, “investment worth INR 100 billion are in jeopardy” because foreign players are dominating the Indian solar market.
Later, in an interview with pv magazine, he spoke about the state of manufacturing in the country: “Currently in India, cell producers are operating at a level of 5 to 8% of the installed capacity as cheap products have flooded the market. For module producers, this figure is between 20 to 25%.” Echoing the same concern, Rao of Lanco Solar said in an interview, “In order to promote healthy manufacturing in the solar sector, Government should keep in account the interests of solar producers in the country. Despite the time overrun, for the second phase of the JNNSM there are still no clear instructions for the project developers on domestic equipment sourcing.”

Antidumping measures

In January 2012, Indian manufacturers lodged a complaint against China, the U.S., Taiwan and Malaysia at the Directorate General of Anti dumping and Allied Duties (DGAD) and sought antidumping duty to be levied on products from these countries depending on the amount of dumping. There are five Chinese companies, two companies from each of Malaysia and Taiwan, and one U.S.-based solar company that have been put in dock by DGAD for dumping solar equipment in India. With Europe expected to decide on antidumping duty on solar equipment on June 6, Indian PV manufacturers are seeking an import duty of US$0.70 to US$0.80 for every kWh of capacity on Chinese companies and US$0.20 to US$0.30 on American, Malaysian and Taiwanese companies.
On November 23, 2012, DGAD stated that it found sufficient preliminary evidence of dumping in India and began the investigation on alleged dumping of solar cells and panels in India. The agency has fixed January 1, 2011 to June 30, 2012 (18 months) as the period of investigation.
On a query from pv magazine on the rationale of imposing antidumping duty on solar imports in the light of protests from domestic solar plant developers, Rao of Lanco Solar said, “Different global governments follow different strategies to promote local industries and also to support the penetration of solar energy. For example, France, Italy and Canada offer preferential tariffs for domestically manufactured products. The U.S. provides investment subsidies to the manufacturing units and also export finance. It is important that every country understands the objectives of the other governments’ missions with respect and extends help to achieve those objectives.” On the same question, Chaturvedi of Moser Baer answered, “What the Indian solar manufacturing industry needs today, is a sustainable, predictable, long term demand and a level playing field. While Government policies will enablethe former, the antidumping duty will take care of the latter. We can compete with the best and the biggest in the world. We feel that the antidumping duty in India will actually drive foreign direct investment by global giants into manufacturing and development across the value chain in India’s solar industry, which will go a long way in achieving both the goals of the JNNSM. The Indian industry is competitive, if we compare our costs with fair prices and continuous production. Our costs are the same as those of tier-1 manufacturers overseas. One look at quarterly numbers of all the major manufacturers will reveal that there are losses for the last six quarters. That gives the idea of the level of dumping which all the major markets are being subjected to. As a result of which the U.S. has already imposed [antidumping duties] and [anti-subsidy duties], and the EU is likely to do so by June 6, 2013.”

Nobody escaped the dragon’s fire

Indian producers unanimously blame Chinese solar producers for the current state of affairs in the domestic and global solar manufacturing industry. China’s solar module manufacturing capacity grew from less than 5 GW in 2007 to a predicted 55 GW at the end of 2012. From the industry and customer point of view, development of a huge Chinese solar industry is a positive sign as solar module prices are at an all-time low. But it has also led to a soaring number of bankruptcies and a temporary closing of many solar production facilities worldwide. Rao of Lanco Solar puts it this way: “The Chinese Government has provided US$43 billion in subsidies and soft loans with an intent for China to dominate global manufacturing. As a result Chinese accounted for 80% of global solar output by 2012 from only 32% in 2008.”

DCR – the bone of contention

To promote local manufacturing of solar cells and modules, the Indian government stipulated the usage of c-Si cells and modules from Indian producers for projects under the first phase of its NSM. Guidelines for the second phase are not yet public, but interviews with high officials at MNRE suggest that the Indian government will extend the DCR protocol in the second phase of NSM. These officials told pv magazine on condition of anonymity (as the policy hasn’t been announced yet) that the government is also considering including thin film modules in the DCR in the second phase.
Tata Power Solar CEO Ajay K. Goel said during a recent media briefing that the dilution of domestic content requirements of the JNNSM has set up perverse behavior in the marketplace. According to him, “Thin film, a technology most experts agree is unsuitable for India, takes a 75% share of the projects purely due to subsidized financing. In addition, many sub-standard modules make their way into India as the policy remains sensitive only to cost and not quality, which, in the long term, will harm the industry.” India’s only thin film technology producer, Moser Baer’s Chaturvedi, whose company was directly impacted due to non-inclusion in the DCR, told pv magazine, “Exclusion of thin film in Phase I resulted in an anomaly, as almost 75% of capacity came up with thin film against the world average of less than 15%. This actually impacted even the polycrystalline technology capacity which idled at levels of less than 15 to 20% industry-wide. Hence in order to meet the JNNSM objective of having a 4 to 5 GW of annual manufacturing capacity, this variance from the policy must be removed and policy must not favor any specific technology in Phase II.” Indosolar’s Venkataramani explained: “The domestic content clause motivated many of our industries to establish world-class manufacturing facilities with expandable capacities. A more effective continuum of the policy will support the producers’ decisions.” Earlier in February 2013, in anticipation of these measures U.S. authorities registered a complaint with the World Trade Organization (WTO) over India’s DCR issue. U.S. authorities have accused India of discriminating against foreign solar products. On the other hand, Indian authorities (MNRE) say that the DCR stipulated by the Indian government is justified to create a healthy domestic solar manufacturing industry. Indian authorities are arguing their case on WTO stipulations that a DCR is permissible if it is used for government purposes. According to Indian authorities the government-backed entity is buying the solar power hence they are not violating any rules. U.S. contention is that ultimately the power is sold to private consumers and government itself is not the end user, so India’s DCR clause for solar components breaches the WTO rules.
Apart from Indian authorities and producers, twelve influential green organizations, including the Sierra Club, Greenpeace USA, Action Aid USA and Friends of the Earth, had also urged the U.S. to withdraw the complaint, and called for a compromise that allows India to build a solar economy. The 60 day consultation period ended on April 7 with no sign of a compromise. The U.S. may now ask the WTO to resolve the complaint.
India has retaliated by asking the U.S. to justify trade restrictions in its own renewable energy projects, arguing that incentives offered to U.S. companies to use local labor make it equally difficult for Indian companies to enter the U.S. In a complaint filed on April 17 with WTO’s dispute settlement body, India has alleged that the U.S., both at the federal and state levels, is offering subsidy programs for local content requirements, making the entry of Indian companies difficult and breaching global trading rules. In the report to WTO’s Subsidies and Countervailing Measures Committee, India has named four U.S. states (Connecticut, Delaware, Massachusetts and Minnesota) which have a program to promote local firms. The complaint says such subsidy programs violate the WTO’s Trade-Related Investment Measures agreement.
One of the leading solar producers in the country, Tata Power Solar’s CEO Ajay Goel, said at a recent press conference: “The U.S. offered a variety of incentives to its companies to protect them from foreign competitors. Preferential treatmentis given to U.S. manufacturers. Due to this, we have not been able to make many inroads there. We have a bunch of investments on hold because of this.”

Robotics and automation

According to various estimates, in order to produce one gigawatt of solar power it requires on average 250 to 500 laborers for polysilicon, 450 to 500 for processing ingots, 3,000 to 6,000 people to produce the cells, 1,500 to 3,000 for the panel lamination and 2,500 to 5,000 for system integration. In light of the above figures, automation and employment of robotics becomes a key factor for a solar producer, notwithstanding the availability of cheap labor.
The Indian industry, which is considered to be a laggard, in this aspect has adapted to automation and the use of robotics in a big way. But the use of robots in the country is still not at the level it is in other countries, even in Asia. In India, only pick and place machines that are fully automated are widely used. Big producers like Indosolar, Moser Baer and Lanco solar use a high degree of automation at their production facilities. However there remain a lot of areas, such as silicon wafer handling – an important part of solar manufacturing – that have not seen much automation in the country.
“India is still a low wage country and using automation in the production process is not often economical,” said one of the executives of a leading solar producer on condition of anonymity. Whereas Indosolar’s Venkataramani says, “Most Indian producers have gone for a high degree of automation in solar production, as it has become a necessity. In our plant at Greater Noida, there is no manual activity right from loading to finished cell production.”