Make in India and the Future of Solar Energy – Latest legal and political changes

​published on 10th August 2020

In addition to the promotion of „Make-in-India” and „Self Reliance India”, the economic stimulus package announced on 12 May 2020 provides for the simplification of administrative and management procedures. It was also announced that new incentive schemes for certain „Champion Sectors” would be created, among others for manufacturers of solar photovoltaic systems. This article is intended to provide an overview of the changes planned for the solar sector and how they will affect the market situation in India.

Current situation

Although India has experienced an upswing in solar energy production in recent years and has now developed into one of the largest solar markets in the world, there are no competitive Indian manufacturers of solar cells and solar modules on the market so far. This is partly due to the fact that the solar market is dominated by products from China, which makes India's solar sector heavily dependent on imports from China. Currently, neither Indian nor European companies can compete with low prices from China. The Ministry of New and Renewable Energies (MNRE) has presented a report to the Indian Parliament that India imported solar cells and modules worth USD 1,189.89 million from China in the first nine months of the financial year 2019/2020.

The fact that India does not want to be that dependent became obvious during the coronavirus crisis due to the current political situation and the interruption of supply chains. India suffered a partial shortage of solar components and modules. As a result, India has now once again focused on the „Make in India” programme and extended it with the „Self-Reliance India” programme. The exact changes, especially for the solar market, are not yet known, but are already being discussed.

Planned changes

The Indian government's economic stimulus package, which was announced due to the coronavirus crisis, contains many changes that could also be interesting and lucrative for the solar market. Among other things, the stimulus package focuses on improving market conditions for Small and Medium Sized Enterprises (SMSEs) and disallowing global tenders of up to INR 2 billion.

In this way, India intends to significantly strengthen its „Make-in-India” and „Self-Reliance India” policies.

In order to generally reduce reliance on imports and to ensure a self-sufficient, sustainable and affordable energy market, the MNRE is currently discussing the possibility of imposing higher tariffs on goods from China. Imposing customs duties of 25 percent on solar energy equipment from 01/08/2020 and their further increase to up to 40 percent by April 2022 are being currently considered. Import duties for solar cells should increase to 15 percent, and then further to 25 percent by 2022. In the meantime, strict quality controls should be carried out, especially on imports from China. India hopes that this will boost domestic production in the solar industry and thus mean a further step towards „Self Reliance India”.

However, financial support for companies remains a critical issue, because the construction of solar farms and solar power plants, as well as facilities of a power producing company are associated with high upfront costs. The continuously high interest rate discourages companies from seeking financing from their Indian house banks. Therefore, India wants to continue to establish and support specialised financing institutions that invest in equity or debt capital of domestic solar manufacturers. In this area, India should develop further tactics in order to ensure that the industry is expanding competitively and profitably in the long term.
The MNRE has also published a draft guideline for the implementation of off-grid solar power plants under the RESCO (Renewable Energy Service Company) model. This is a type of a lease model where the solar project is financed, installed, operated and maintained by a third-party company. The owner of the land can then consume the solar electricity produced, in return for which a tariff set in advance in the lease agreement is paid. The new guidelines will initially apply to the installation of RESCO off-grid solar systems in the north-eastern states of India, which are financially supported by Central Financial Assistance (CFA).

First successes

The fact that India is continuing to develop the solar sector despite the coronavirus crisis is reflected in the latest tender of the Solar Energy Corporation of India („SECI”) for a solar project with a total capacity of 2 gigawatts, 300 MW of which was allocated to a Spanish company for INR 2.36 per KWh. This is a new record price, undercutting the previous record price of INR 2.44 per KWh in 2017.

In order to be able to carry out and maintain such mega projects, India has expanded its „Skill India” programme in recent years also in the field of solar energy and has created initiatives that specifically focus on the training of skilled personnel such as engineers for solar power plants and solar farms.

Furthermore, the government is now focusing on tenders for „Round-the-Clock” („RTC”) projects and hybrid projects. It is also currently being debated whether to move away from simple invitations to tender for solar and wind power plants and instead focus entirely on RTC and hybrid projects.

Conclusion

Initiatives like „Skill-India”, „Digital India”, „Self Reliance India” and now specifically „Make in India” reflect the entire policy of the Indian government for renewable energy. This clearly shows that the Indian government wants to advance the development of renewable energy. In this way, India is taking advantage of its geographical location and climate characterised by a large number of hours of sunshine available all year round. 

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