Insights into Editorial: A solar gear shift

Insights into Editorial: A solar gear shift

Context:

The 2018 Economic Survey identifies renewable energy as a champion sector under the Make in India 2.0 programme.

India currently meets almost 90% of its annual requirement of solar panels through imports which affects the growth of a nascent domestic solar manufacturing sector.

Policy support for the solar sector is increasingly focussed on domestic manufacturing.

So the question that warrants examination is whether the policy interventions send right signals to an already uncertain solar sector and our renewable energy ambitions on track.

The objective of National Solar Mission

National Solar Mission is one of the eight key National Missions of India’s National Action Plan on Climate Change (NAPCC).

The objective of the National Solar Mission is to establish India as a global leader in solar energy, by creating the policy conditions for its development across the country.

The Mission has set the ambitious target of deploying 100GW of grid connected solar power by 2022.

The target will comprise of 40 GW Rooftop and 60 GW through Large and Medium Scale Grid Connected Solar Power Projects.

The mission is aimed at reducing the cost of solar power generation in the country through long term policy; large scale deployment goals and aggressive R&D.

Challenges in Solar energy sector

Some of the major problems faced by the industry are –

• Commercial banks in India constitute major source of financing for infrastructure. But these banks provide loan at a rate much higher than in the developed nations. 
• Availability of land is also a big impediment for this sector. In India generally land is segmented and records might not be available.
• Evacuation systems for transmitting the electricity generated in the solar power plant are still fully not equipped.
• Import of cheaper solar cell panels is s major cause of worry.
• India and the US clashed in their trade dispute over solar cells and solar modules at WTO.

Is implementing trade remedies a solution?

Implementing trade remedies that have anti-competition implications have short term benefits.

Two large solar energy markets, India and the United States are considering the imposition of safeguards duty on solar panels. In such a scenario, Trade remedies are attractive because they create tangible short-term benefits such as job creation, reduction in trade deficit, and higher local tax collection.

However, such a move would also result in higher tariffs and make solar power less attractive for the already financially strained sector.

The more than 40% spike in solar electricity prices would be accompanied by diplomatic tensions that follow the implementation of such measures.

It will encourage other major economies to retaliate with their own protectionist measures.

Is it vital for India to remain compliant with the global trade regime?

Previous measures such as the domestic content requirement (DCR) to appease the concerns of the domestic solar manufacturers were challenged and overturned at the World Trade Organisation (WTO).

The DCR scheme did not impose any restrictions on imported sources and only sought to secure an assured market for domestically manufactured panels.

Other countries opposed the scheme as they felt that it was discriminatory in nature against foreign solar cell suppliers.

A draft policy (2017) aimed at promoting domestic solar manufacturing through a proposed 12,000 MW DCR component may evoke similar opposition at the WTO.

Prioritising domestic goals without complying with international trade rules may affect the much-needed stakeholder confidence required to achieve India’s clean energy target.

Resolution of inter-ministerial rift is the need of the hour

India’s solar sector is currently caught in inter-ministerial cross-fire.

The severity of the issue is evident in the power given to both the Ministry of Finance (MoF) and the Ministry of Commerce and Industry (MoCI) to implement trade remedies like safeguard duties and anti-dumping duties.

Further, the Ministry of New and Renewable Energy (MNRE) has been grappling with issues posed by the MoF regarding the re-classification of solar panels as electrical motors imposing additional duties and cesses on importers.  

An inter-ministerial committee headed by the MNRE must be constituted to coordinate moves among the MoF, the MoCI, the Ministry of Power, and the Central and State Electricity Regulatory Commissions.

Way Forward

Developers and manufacturers need to voice their needs clearly and respond to policy implications clearly.

The industry needs one unified voice representing the key concerns of each stakeholder-category, without ignoring the broader interests of the sector.

India will need a comprehensive strategy on issues such as effective sourcing of critical minerals and investment in R&D.

Innovative Financing measures such as clean energy fund, generation based incentive linked loan repayment and green bonds could be one solution to overcome the financial needs of this sector.