US, India Struggle To Counter China PV Dominance With Support For Domestic Manufacturers

A few announcements, all in the past 30 days are beginning to prove just how tough it is for countries to counter China’s dominance of the solar supply chain. Notable among these have been moves made, or being contemplated in the US and in India now. These pull backs on actions taken or considered matter, as even related moves like the push for huge green hydrogen manufacturing is affected by the state of the solar PV market costs.

The US: No Political Consensus On Domestic Manufacturing Strategy

First, it was the decision to hold in abeyance anti-dumping duties on imports from South East Asian countries, widely suspected to be conduits for Chinese exports to the US by the Biden Administration. By taking the call to postpone any action for a two-year period, the US administration was seen to have bowed down to the pressure from local developers who insisted that any such action would lead to a strong impact on further solar capacity additions. Supporting their contentions was a visible drop in project construction on the ground. Predictably, the move has left US manufacturers   fuming, particularly thin film manufacturer First Solar, that has made it clear it will not be adding to its manufacturing plans in the US.

The second big blow was the defeat for the Climate Change Bill in the Senate. The Bill, which had provisions for wide ranging subsidies for domestic manufacturing in the PV supply chain, has effectively been stymied by the Republicans, many of whom continue to push for gas over renewables. Without those subsidies or support, domestic manufacturing in key inputs, be it Polysilicon or cells is considered simply impossible in the US market, considering the Chinese dominance as well as ability to control supply. Visions of 30 GW of solar manufacturing in the US have evaporated with the bill.

For India, even as the government has bravely gone ahead with the customs duty as promised on module and cell imports, it has run into a unique challenge of rising international prices at the same time. Thus, despite the lower import duty on cell imports, the additional cost is proving to be back breaking for developers forced to source modules locally, as local manufacturers pass on the rising costs. That has brought back the clamour for some leeway again, including the old push for grandfathering of a significant part of the projects in the pipeline.

India Takes a Longer View

While India’s PLI scheme has made better progress than the US plans, the larger PLI scheme is yet to move ahead,   and the actual fruits of the scheme in terms of a domestic supply chain for solar PV inputs, particularly cells, and at some stage, Polysilicon and wafers itself, would probably be visible only by 2025, going by current trends. That leaves the government facing a very tricky period for the next two years, when project execution could face delays, and fresh tenders might face higher bids. With a target of close to 25 GW of solar capacity additions nominally staring the country in the face, that could leave the government scrambling to find short term solutions that keep everyone, including domestic manufacturers happy. For, unlike the US, India does have a significant, and growing domestic manufacturing base , especially for solar modules. Significant cell manufacturing plans are well on their way, and we should start seeing it on the ground by early next year even. The challenge is on the input for cell manufacturing, namely, wafers and the precursor to those, Polysilicon. Plans remain at an early stage for manufacturing those, and that keeps even cell manufacturers dependent on global movements.

That the government is willing to swallow higher prices to an extent for domestic industry is apparent, in the way it took the call to increase duties despite opposition or calls for a one-year delay. Similarly, a recent announcement by the MNRE secretary, Indu Shekhar Chaturvedi, to relook the reverse auction mechanism for wind tenders, where industry has complained about unrealistic pricing pressure, indicates a willingness to see prices higher than those that ruled till 2021. Although it does appear as if the range the government has been comfortable with will be within a maximum of 20-30% of the lowest rates it had managed in 2021- even that looks challenging, however, seeing how prices have moved so far, and the strong demand for Solar PV worldwide.

A recent move being considered is to allow energy PSUs, which have all announced major solar capacity plans, to import key components (other than modules and cells) directly from China from entities that are not registered in India, as mandated currently. This is supposed to level the playing field for these PSUs vis-a-vis private players, who they compete against in tenders.

Finding a balance between protection from Chinese imports, and demand for domestic manufacturers, has been a challenge. The move to enable a bigger corporate and industrial market by easing open access rules, is just one way the government is trying to stimulate demand for domestic production, besides the (Approved List of Models & Manufacturers) ALMM conditions, of course. But the same C&I segment, which has higher price elasticity, is also finicky on quality, which needs to be addressed by more domestic manufacturers.

The residential rooftop segment offers yet another  opportunity to absorb domestic production at higher prices, but that has been shackled by poor ground support at DISCOM level across most states.

With the interest rate cycle turning this year, expect a lot more risks for developers that bid too low, or more logically, prepare to see bid prices last seen in 2017 even, before the record low prices started making their appearance.