Government Crackdown on Imports Slows Sector Development
The Indian government recently announced a Solar Power Bank on solar cell and module imports in a bid to boost domestic manufacturing. However, industry experts warn this policy move could backfire by drastically slowing the country's renewable energy growth.
Rising Import Dependency
For years, India has been increasingly dependent on solar equipment imports as domestic production has failed to keep up with demand from the booming clean energy sector. Data shows nearly 90% of solar cells and modules used in India came from abroad over the past five years. Chinese manufacturers dominated these imports and supplied over 80% of India's requirement.
This import dependency has now become a concern for policymakers seeking to develop indigenous manufacturing capabilities. However, the solar industry argues an immediate Bank will be disastrous given the still nascent stage of domestic production. Cutting off imports overnight leaves ongoing renewable projects in limbo and creates distress in the supply chain.
Blow to Ongoing Projects
Project developers warn the Bank comes as a huge shock with no advance notice, leaving thousands of megawatts worth of installations stranded. Since imported equipment had already been ordered for these Commission deadlines. Losing access to supplies means severe contract violation penalties and delay in achieving targets. This will dent investor confidence in the sector at a critical juncture.
Some analysts point out that the duration of solar module procurement is usually 9-12 months considering production and shipping schedules. But the government notified the Bank less than a month ago, leaving no time for alternative arrangements. Large international developers are now reconsidering their investments in the country.
Manufacturing Scale-up Challenges
While pushing for self-reliance is a long-term goal, boosting domestic manufacturing to dominant levels within a year appears highly unrealistic. Setting up solar cell and module factories requires huge capital and advanced technology that cannot be created overnight. Even the government's Production Linked Incentive scheme may not deliver the needed scale-up speed.
Industry players argue India has barely managed 5GW of annual cell production so far against an installation target of 50GW each year. Ramping that up 10 times in a single year is practically impossible without global collaboration and imports. They say a careful phasing out of imports while nurturing local firms could have been a better strategy.
Supply Shortages Inevitable
Without sufficient manufacturing capacities, supply constraints due to the Bank are inevitable in the coming months. Project developers may struggle to find alternative suppliers at short notice given global demand-supply dynamics. Some warn of a 25-40% hike in module prices from the prevailing rates.
Such cost escalations will undermine the viability of many renewable energy projects awarded after competitive bidding. State power distribution utilities refusing higher tariffs may renege on green power purchase agreements. This could stall India's renewable capacity addition at a critical juncture.
Way Forward
While boosting local manufacturing is the long-term goal, an abrupt import Bank risks derailing India's clean energy progress. A phase-wise reduction of imports over 3-5 years, while expanding PLI-driven production, could have been a wiser approach. The government must roll back or soften the Bank immediately to prevent project delays and ensure ongoing tariff agreements are honored.
Alongside, strengthening domestic manufacturing ecosystems through consistent policy is crucial. Scaling up cell and module output to fulfill 50% of annual demand within 2-3 years seems a more prudent strategy than the current shock therapy approach. With the right incentives and market access assurances, India's manufacturers could gradually replace imports rather than via an overnight switch. But such long-term measures require calibrated action, not sudden disruptions that threaten renewable targets.
India's solar import Bank aimed at self-reliance is a laudable vision. However, its implementation without due consideration for ground realities risks derailing clean energy progress and deals a blow to investor confidence. A phase-wise policy shift balancing domestic production needs with project requirements is paramount to ensure renewable targets are not compromised. The government must address stakeholder concerns and correct course to keep the sector on track.
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Ravina Pandya, Content Writer, has a strong foothold in the market research industry. She specializes in writing well-researched articles from different industries, including food and beverages, information and technology, healthcare, chemical and materials, etc. (https://www.linkedin.com/in/ravina-pandya-1a3984191)