Budget 2021. Familiar Tussle Between Developers And Manufacturers

As the 2021 budget comes around on February 1, it is widely considered to be one of the most critical of the century, coming as it does after the Covid-19 pandemic, which is still to end. While the start of vaccination has brought in a semblance of control back to the government on its future, the growth challenge remains one of its toughest tasks, especially in the solar sector.

Not only has the solar sector been one of the few consistent bright spots for the government, by delivering capacities at ever lower costs, it has also by now created a strong ecosystem of suppliers, both domestic and foreign. Which is where the government’s ‘Atmanirbhar’ moves here are being watched very closely. Bharat Bhut, Co-founder and Director at Goldi Solar, a leading Surat

 

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based manufacturer of Solar modules speaks for most manufacturers when he says “We hope that the Union Budget 2021 offers clarity and immediate implementation of the basic customs duty on solar cells and modules. Subversions or supportive policy measures, incentives and financial support need to be provided to local suppliers to strengthen the auxiliary industry and eventually make the domestic solar industry and the ecosystem cost-competitive. It is also our hope that this will give a significant boost towards achieving an “Atmanirbhar Bharat”. The solar manufacturing industry is also eagerly awaiting the PLI (Production Linked Incentive) scheme for high-efficiency modules to come into effect.”

The situation has been exacerbated by China’s efforts to change the status quo on its borders with India, forcing the Indian government to explore all avenues to hit back, including reducing imports from that country. With close to 70 percent share of solar equipment till 2019, it was an obvious move, except that it comes with severe challenges.

For one, concentration of solar manufacturing in China has made it a very efficient and low cost option for developers, and helped in no small way to reduce the LCOE of solar power. Driving a shift to domestic equipment manufacturers will mean giving up a significant part of these savings, especially of the sort seen since 2019. For India, whose messy power sector is a mish mash of cross subsidies, free power and high power losses, low cost power is almost the sole decider for power purchases by stressed distribution firms.

Thus, even as developers who have won bids in the past 18 months will push for no extra duties, domestic manufacturers like Vikram Solar  have made it clear that investments into manufacturing, and even sustaining existing capacities, needs protection from Chinese imports, of an order much higher than the present 14.9 percent Safeguard Duty(SGD). While we have been hearing of demands for a figure as high as 30-50 percent, the fact that the government chose to defer any more increases in customs duty to April 2022 tells you about its compulsions.

It is hoping that  in the period between the establishment of fresh, modern manufacturing  capacities in cells and modules, and fresh protection for these, most of the procurement for projects already bid out can end. As always, this being India, and thanks to the Covid linked delays, that looks unlikely by April 2022 even.

Developers will also be keen to see passage of the Electricity (amendment ) bill 2020, with its stricter RPO obligations, enforceability of contracts and a more uniform policy environment nationally. But that has already become a political hot potato, with little support outside non BJP parties today.

With solar manufacturing coming under the PLI scheme, the hope is that the government will use that option to incentivise manufacturing for now. Solar Manufacturing also needs to spread out more widely in the solar chain, especially when it comes to ingots, wafers and cells, rather than just modules.

It also seems far more reasonable to hope for a shift in subsidy support to storage linked tenders, to support enough investments into RE+storage capacities, which will be increasingly needed in the future with a higher share of RE in the grid  as well as other storage linked opportunities. The storage focus is also critical for the country’s transition in transportation to an EV led future. With batteries being the equivalent of modules in EV’s, manufacturing those in India will be key to preserve the self reliance in Auto sector that has been built up painstakingly over the years.

Industry hopes of a lower GST also seem to be a tough ask, considering the widely anticipated push for a more uniform GST rate soon, instead of multiple slabs with large groups of goods within each. However, a 5 percent GST rate, if it happens, will certainly be welcome for all stakeholders in the sector.

An area where both developers and manufacturers will be on the same page is the recent increase in prices of metals,  especially those used in structures. That has hit both hard, as many manufacturers also had EPC divisions.

Irrespective, the government will be careful to balance out its steps vis a vis the stalling of growth in the sector that has been seen for the past 3 years now. Some of the biggest moves will involve cleaning up the issues at discom level, and enforcing RPO more strongly. The stick that the Electricity act sought to bring looks increasingly like it will be replaced by a carrot of financial incentives now.