Monday, December 30, 2013

Coming Down to Earth: Why Solar Power isn’t a Big Deal

(The cost of solar power has fallen from Rs 18 per unit a
few years ago to Rs 7.50, and is about to reach grid parity a
big accomplishment to promote clean energy.)
By Sajal Ghosh

The government targets 20 GW of solar power by 2022. With India importing almost 75% of its crude oil and 25% of its coal needs, it is imperative that solar energy should be given high priority. The cost of solar power has fallen from Rs 18 per unit a few years ago to Rs 7.50, and is about to reach grid parity — a big accomplishment to promote clean energy. But one must look critically at India's solar energy market and its distortions.

 Is the target too ambitious? Does the targeted capacity addition reduce India's import dependence? Of late, the country has been flooded with cheap Chinese panels. Chinese companies get cheap capital, subsidised power, free land and other incentives for exports. The US solar industry has also penetrated the Indian market by exporting cheap thin-film solar panels. US banks offer low interest rates (about 3%) and along repayment schedule (of up to 18 years) to Indian solar project developers to buy thin-film panels manufactured by US companies.

This is lucrative compared to high interest rates offered by Indian banks. Today, 80% of local manufacturers are in a state of forced closure, while US makers are getting orders from Indian solar power developers.

This has skewed the Indian market in favour of thin-film panels imported from the US; almost 60% of panels installed in India are thin-film, while the global figure is only 14%.

So, the reduction of the cost of solar power is not due to a technological breakthrough in terms of enhanced conversion efficiency, but due to the dumping of cheap imported solar cells and modules. Such high import dependence will pose a serious threat to India's energy security.

To protect the solar industry, the government has initiated anti-dumping investigations on imports of solar cells from China, Malaysia, Chinese Taipei and the US. Anti-dumping duties ranging from 18.32% to 249.96% on Chinese solar cells and panels have already been imposed by the US, while the EU imposes provisional anti-dumping tariffs on Chinese solar panels.

These duties may be welcomed by Indian manufacturers but it will raise the costs of solar power, a cause of concern for project developers. Questions have been raised if domestic solar manufacturers have the capability to cater to the growing needs in terms of both price and quantity.

As of 2012, the Indian cell manufacturing capacity was only 700 MW, much below the desired capacity. Also, Indian cell manufacturing technology lags. The quality of cells manufactured in India is inferior to global standards and they usually don't come with warranties that are critical for any solar project.

Acomplex tax structure also makes domestic cell production costly and unviable. The overall duty on raw materials and products such as silicon wafers is 10-15%. This duty is not equally imposed on finished silicon modules and cells. So, it is cheaper for the Indian module suppliers to buy internationally produced cells than to purchase raw material.

  Once anti-dumping duties are imposed, cell manufacturers will have to procure raw materials from international markets and it will make them more costly. Thus, the imposition of anti-dumping duty and heavy reliance on domestic solar manufacturers would pose a serious impediment on India's solar mission.

 We can learn from countries like Germany, which had an ambitious solar energy programme. In Germany, the high rate of returns on solar projects encouraged huge investment for around 25 GW though solar power contributes only 4% of the total electricity demand. Solar power is still the least efficient among Germany's other renewable energy technologies, but 50% of total green energy subsides go to solar power.

To address unaffordable and unreliable solar power, which increases power tariff and government's subsidy, Germany renewed its focus on renewable technologies.

The writer is professor, MDI. Co-authored with Surobhi Deb, astudent of Energy Management Programme at the institute


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