An executive working for an independent power developer told PV Insider that it...

The Ministry of New and Renewable Energy in India recently introduced its draft guidelines for the selection of 1500 MW grid solar PV power projects under the National Solar Mission (NSM), Phase-II Batch-II scheme.

It has been stipulated that a capacity of 500 MW will be marked for bidding with domestic content requirement (DCR). Under DCR, the solar cells and modules used in the solar PV power plants must both be made in India.

The government has stated that for the thin-film segment, the entire modules assembly comprising of thin-film solar cells shall be manufactured in India. As per the excerpt from the document, the starting substrate (without any semiconductor junction) and other requisite raw materials can be imported.

DCR is only there for 375 MW under batch I of phase II of the NSM. For the upcoming batch II of phase II of the NSM (750 MW in 2014-15 + 750 MW in 2015-16), it is expected that there will be a domestic content requirement on a total of 500 MW (250 MW in 2014-15 and 250 MW in 2015-16), said New Delhi-based Jasmeet Khurana, a consultant at Bridge To India.

“The ministry might do away with this domestic content requirement if anti-dumping duties are enforced,” says Khurana.

Selection of bidders

Developers at the time of bidding may opt for either “DCR” or “Open” or both the categories. The developers need to come up with separate bids in case they intend to bid under both the sections. Each bid/application can be for a maximum of five projects at different locations with aggregate capacity not exceeding 100 MW per tranche.

Under Batch-II, solar PV projects with a total capacity of 1500 MW capacity are being planned to be chosen as per the scheme of bundling with Thermal power as in Phase-I.

According to Khurana, allotments are to be decided in favour of bidders depending upon the maximum discount offered on a benchmark tariff.

For the current financial year, the target tariff has been fixed at INR 7 (USD 0.11)/kWh by the Central Electricity Regulatory Commission. NTPC Vidyut Vyapar Nigam (NVVN) is going to be the off-taker of solar power and will bundle it with thermal power to sell to distribution companies across the country at a competitive rate.

Likely scenario

An executive working for an independent power developer told PV Insider that it is not easy to comment on DCR at this juncture.

“It is very early to talk about bidding in DCR until the anti-dumping issue is sorted out,” says the executive.

Under phase Iofthe NSM, 65% of projects were thin film based,believed to be a result of their exemption from the DCR provision andthe low interest loans that developers obtained from the internationalbanks, tied to panel imports.

According to sources, to close out on this shortcoming, for thebatch 1 of Phase II, the DCR clause was made technology neutral and applied to 50% of the projects.

“Thisrestored the balance in favour of crystalline technology under NSM asthin film manufacturers in India are few. Now under batch IIof Phase II,though the absolute capacity has risen, the share of projects underDCR is lower at 33%, down from 50% under batch I,” says an unattributed source.This implies thatthe share of thin film technology under the Open category may rise incomparison to batch Iof Phase IIgoing by the Phase Itrends.

However,with a fall in the cost of crystalline panels, thin film technology has lostthe cost advantage it enjoyed earlier. Also, the overseas financingfor solar projects, which was a major driver behind thin film imports during phase I, is projected to decrease.These factors will push the project developers toadopt more of crystalline PV technology, according to specialists. In comparison to PhaseI, the share of thin film technology under phase 2 is expected toremain low.

Under batch IIof Phase II, 500 MW of projects will be under DCR, upfrom 375 MW in batch I. This shall give more space to domestic thinfilm manufacturing sector in terms of bidding.

Competition

Low-priced imports of PV panels have led to shutting down and debt restructuring of India’s PV manufacturers.

Imports of cheap crystalline panels from China, considered to be profoundly subsidised, are restricting the development of solid offerings from local entities, and also hindering the local manufacturing capacity.

The ministry is planning to impose anti-dumping duties, though nothing is confirmed yet. In fact around the time when the latest guidelines were released, the issue of anti-dumping duties, too, was discussed.  As indicated by Khurana, if duties are enforced, DCR might be dropped.

Thin filmmanufacturing capacity in India is small and will continue to facetough competition from crystalline sector.

It needs to be understood that DCR alone is insufficient topropel domestic manufacturing, particularly of thin film technologies, giventhe several limitations it faces.A more holistic solution with a focus on research, innovation and a vibrant manufacturing environment is needed to pave way for an apt technology mix for solar sector in India.

The regulatory environment should encourage and support research and use of the most appropriate technology options, rather than invigorating the domestic manufacturing capacity in the short-term.

However, over the long run this could change. At the time of writing a report by KPMG said that India could save itself $42bn in solar equipment imports by helping turn its ailing manufacturers into a viable industry.

The findings come as India ponders whether to impose dumping duties on U.S. and Asian solar panel and cell suppliers in a bid to protect local competitors whose factories are operating at one-fifth of their capacity.

India may install as much as 100 gigawatts of solar capacity by 2030, KPMG projected in a study for the Indian Solar Manufacturers Association. Building a domestic manufacturing base would also create 50,000 jobs in the South Asian nation, according to the report.

“Indian manufacturing is competitive but suffers due to a lack of incentives when compared to other nations,” KPMG said. China and the US have provided billions of dollars in financing, provided tax benefits and imposed anti-dumping duties to help their local industries, according to the report.

As a result, Indian factories are one-fifth the size of a typical Asian plant and do not benefit from the economies of scale of their overseas competitors, KPMG said.

"The Indian Manufacturing Policy recognises solar manufacturing to be of strategic importance. However, the solar manufacturing industry has been facing challenging times because of various factors including lack of a level playing field and various global factors," said the report according to several media sources.

According to the report's findings, these factors have not allowed the industry to develop economies of scale and an end to end supply chain. "About 40% of the Indian solar cell manufacturers have shut down with industry utilization at only 21%. The industry has suffered due to sudden and sharp price declines due to global over-supply and lack of a level playing field," said the report.