India has embarked upon an ambitious plan to install 227 GW of renewable energy by 2022

India has embarked upon an ambitious plan to install 227 GW of renewable energy by 2022. Solar energy forms more than 65% of this 227 GW dream. I call these targets ambitious since, as of today, the installed solar capacity in India is around 21 GW, out of which about 9 GW has been installed in 2017-18. Simple math tells us that we need 20 GW of installations every year until 2022 if we have to meet this ambitious target. This article is an attempt to analyse the role of the solar manufacturing industry in achieving this target and the hurdles that lie on the path ahead.

One of the primary objectives of the National Solar Mission is to achieve energy security through developing indigenous solar manufacturing capacity. Currently, installed capacity for the production of solar cells, which is the basic and the most essential building block for the production of solar power, is 3.1 GW. The installed capacity for the production of solar panels (or modules), which are produced by assembling solar cells, is 9 GW. It is noteworthy that the 21 GW capacity of solar power deployment so far has been largely attained using imported solar cells and solar panels, defeating the whole purpose of reaching energy security.

Generally, any industry is driven by demand-supply norms. In the solar sector too, the domestic industry is trying to cater to the demand but faces severe competition from the cheaper imports. So, what does the domestic industry do in such a scenario? Any industry which feels that there is an “injury” to them because of increased imports can approach the Director General for Trade Remedies (DGTR) to initiate safeguard duty investigation to protect them by imposing a safeguard duty on imports. A safeguard duty is imposed to remedy serious injury caused by sudden, sharp and significant increase in imports and applies to all imports from all countries (barring a few exceptions for goods imported from developing countries having de-minimis share).

The Indian industry has approached the authorities to seek imposition of safeguard duty on imports of solar cells and modules, and provisional safeguard duty was recommended to be imposed at 70% for 200 days in December 2017. Indian solar industry, however, is in a peculiar situation as a large portion of the domestic production capacity, accounting for about 40%, has been set-up in Special Economic Zones (SEZ), which enjoy certain benefits, primarily to promote exports but also to cater to the Domestic Tariff Area (DTA). If the safeguard duty were to be applied, the domestic manufacturers in the SEZ would also be liable to pay the safeguard duty.

whenever they sell modules in India because SEZs are considered to be outside the Indian Customs Territory and this would, therefore, defeat the very purpose of protecting and promoting domestic production. Now, while it may seem logical that the SEZ should be exempted, (after all, why would domestic industry pay safeguard duties, since the whole purpose of applying safeguard duty is to protect them against imports), unfortunately, the policy makers seem to be in a dilemma. The dilemma before them is to attain the target of 227 GW of renewable energy by 2022, which cannot be attained unless domestic industry is fully supported and encouraged and, on the other hand, if the imports are totally strangled, the target cannot be attained solely through domestic production.

The intention of the government to protect the domestic industry against dumped imports can be well appreciated, as those indulging in dumping resort to an unfair practice through which they inflict injuries to the domestic producers in India. But, when it comes to imposition of safeguard duty, particularly on solar cells, it needs to be kept in mind that domestic capacity is merely 3.1 GW of solar cells. If the government really wants to encourage and protect them, it must have concrete plans to establish huge production facilities for solar cells either in the public sector or with private participation, as this industry would need huge investments and the latest technology for producing high efficiency solar power cells. It has also to be kept in mind that, with the increased focus on local production of solar power, world over, the demand for solar cells is increasing and the main suppliers of solar cells, namely China, Malaysia and Taiwan may also not have much surplus capacities to cater to the needs of others.

To sum my thoughts above, since substantial domestic solar capacities are located in SEZs, this measure would be counterproductive and harm the very industry for whose protection the measure is intended to be imposed. The authorities can handle this situation by either applying a Tariff Rate Quota (TRQ) regime, under which a certain quantity is exempted from payment of safeguard duty on importation, and imports over and above this quota are charged to safeguard duty. This quota is progressively increased every year. A substantial part of this quota would need to be allocated to the SEZ units in India to take care of the peculiar Indian situation. In the alternative, the Centre may consider exempting SEZ units from payment of safeguard duty. In fact, the DG (Safeguards) himself has suggested that “the remedy to this could be a duty exemption to the extent of the safeguard measure when the PUC is cleared by a SEZ unit into the domestic market…”. It is now a wait and watch game.

The government’s intention to encourage ‘green energy’ is a welcome step but, at this juncture, we need to be cautious of each step we take. This could indeed make or break the future of solar power in India—eclipsing the sunrise industry before its dawn.

Source- The Financial Express