English Hindi


Prelims bits

Prelims Capsule


India’s solar manufacturing strategy

India’s solar manufacturing strategy

Tag: GS 3 || Economy || Infrastructure || Power & Energy

Why in news?

  • Despite making significant progress in solar power generation, India still relies on China for equipment.

Reliance on China for equipment

  • Progress: India has made significant progress in creating capacity for solar energy generation in the last few years. The Prime Minister’s emphasis since 2014 has given a new fillip to solar power installation.
    • Unit costs: The unit costs of solar power have fallen, and solar energy has become increasingly competitive with alternative sources of energy.
    • Solar generation capacity: India expanded its solar generation capacity eight times from 2,650 MW on May 26, 2014 to over 20 GW on January 31, 2018, and 28.18 GW on March 31, 2019.
    • Targets: The government had an initial target of 20 GW of solar capacity by 2022, which was achieved four years ahead of schedule.
      • In 2015, the target was raised to 100 GW of solar capacity by 2022.

Import dependency

  • According to the Ministry of New and Renewable Energy (2018), India has an annual solar cell manufacturing capacity of about 3 GW while the average annual demand is 20 GW.
    • The shortfall is met by imports of solar panels.
  • The government is a near monopolistic buyer.
    • India is regarded by the global solar industry as one of the most promising markets, but low-cost Chinese imports have undercut its ambitions to develop its own solar technology suppliers.
    • Imports, mostly from China, accounted for 90% of 2017 sales, up from 86% in 2014.

Manufacturing potential

  • On the first two capabilities, the supply chain of solar photovoltaic panel manufacturing is as follows:
    • silicon production from silicates (sand);
    • production of solar grade silicon ingots;
    • solar wafer manufacturing; and
    • PV module assembly.
  • The capital expenditure and technical know-how needed for these processes decreases from the first item to the last, i.e. silicon production is more capital-intensive than module assembly.
  • Most Indian companies are engaged in only module assembly or wafer manufacturing and module assembly.
  • No Indian company is involved in silicon production, although a few are making strides towards it.

China’s edge

China’s cost advantage derives from capabilities on three fronts.

  • Core competence: The six largest Chinese manufacturers had core technical competence in semiconductors before they turned to manufacturing solar cells at the turn of the century. It takes time for companies to learn and put in action new technologies.
    • When the solar industry in China began to grow, Chinese companies already possessed the know-how.
    • Experts suggest that the human and technical learning curve could be five to 10 years.
    • Indian companies had no learning background in semiconductors when the solar industry in India began to grow from 2011.
    • State governments need to support semiconductor production as part of a determined industrial policy to develop this capacity for the future.
  • Government policy: The Chinese government has subsidised land acquisition, raw material, labour and export, among others. None of this is matched by the Indian government.
    • Perhaps even more important is commitment by the government to procure over the long run — without that the investment in building up the design and manufacturing for each of the four stages of production of solar power equipment would come to nought.
  • Cost of capital: The cost of debt in India (11%) is highest in the Asia-Pacific region, while in China it is about 5%.

Way forward

  • Substitute imports: Substituting for imports requires human capabilities, technological capabilities and capital in the form of finance.
  • Public procurement: The government is still free to call out bids for solar power plants with the requirement that these be made fully in India. This will not violate any World Trade Organization commitment. However, no bids will be received as manufacturing facilities for these do not exist in the country.
  • Local manufacturing: If the bids were large enough with supplies spread over years, which gives enough time for a green field investment to be made for manufacturing in India, then bidders will emerge and local manufacturing can begin.
  • Solar manufacturing strategy: India needs a solar manufacturing strategy, perhaps like the Automotive Mission Plan (2006-2016), which is credited with making India one of the largest manufacturers of two-wheelers, three-wheelers, four-wheelers and lorries in the world. This would also be a jobs-generating strategy for an increasingly better educated youth, both rural and urban.

Mains question

  • Can India meet its solar energy goals in time?