Recently Indian Prime Minister Narendra Modi received the United Nations’ “Champions of the Earth” award for his “contribution” to the International Solar Alliance initiative and efforts to “Beat Plastic Pollution.” The International Solar Alliance is a global partnership that aims to reduce dependency on fossil fuels and increase the generation of solar power in “solar-resource-rich countries.”
The Modi government has set a target to produce 175 gigawatts of renewable energy by 2022, 100GW of which is to be solar. While fiscal year 2016-17 saw the highest annual addition of 11.3GW of renewable energy, the solar industry, in particular, is facing several hurdles in its bid to meet the national target.
A former director of the Ministry of New and Renewable Energy (MNRE), who doesn’t wish to be named, is of the opinion that it is good to set high targets but that India needs to focus on domestic manufacturing of important components in particular.
“Currently, we are only working on attracting investments in solar projects and not on research and development. Also, until and unless we … produce important components like solar wafers domestically, we won’t be able to compete with other countries, and it will ultimately snowball,” he said.
“India’s immediate concern is demand for energy. There is no study yet to evaluate the net carbon footprint before the solar panels are assembled. Therefore, the environmental issue becomes moot in this case even though the final product is clean.”
According to a report by global consultancy firm EY, “Renewable Energy Country Attractiveness Index for 2018,” India has fallen to the fourth position from second last year. China dominates the list for the third consecutive year, whereas the US and Germany have passed India. The reason for India’s fall is mainly investors’ concern over a 70% import tariff on solar components and lower power-project bids.
The report stated, “Although solar tariffs [fixed charges to consumers] have risen slightly in Gujarat’s latest auction, aggressively low bids in 2017 wind and solar auctions now seem unsustainable. The threat of solar import tariffs and disputes between developers and distribution companies are raising investor concerns.”
Gujarat’s solar tariffs currently stand at an all-time low of 2.44 rupees (US$0.033) per unit because of a reverse bidding mechanism whereby power producers quote cheaper tariffs – what they will charge consumers – to win the bid.
The former MNRE director said: “Even if you give incentives but there is no policy in place as far as manufacturing is concerned, it will be of no use. You can bring in [import] tariffs provided it helps the domestic manufacturing and strengthens the economy.”
However, Tarun Kapoor, a senior Indian Administrative Service (IAS) officer who has served as joint secretary with the MNRE, said, “If the target is high then it will trigger higher volumes, which in turn will increase domestic manufacturing.”
He also said the goods and services tax (GST) should be kept at zero for a while. Even though the price per unit in states such as Gujarat is quite low, “it has to be the same throughout the country.”
Currently, the GST on solar equipment stands at 5% while the solar projects fall under the 18% slab. Furthermore, producers face import duty on solar cells of 25%. This higher tax rate on solar projects becomes a cost for the producers which will increase the cost of the project by 25%, inflating the final price.
“Prime Minister Modi gave a push to solar and now it has to be consistent. The biggest concern, as of now, is the recurring imports, which shouldn’t happen,” Kapoor said.
But the former MNRE director insists that the cost of solar projects is really high. “Even if you try to store power using batteries, the cost will increase. The real cost of generation of power is going to be high even if the cost per unit is low. In the long run, it is not viable and sustainable.
“If you see the solar power to grid, it is the lowest as compared [with] other energy sources. In my view, these targets are not sufficient. We should first slowly develop the domestic industry.”
Globally, India ranks fifth in solar capacity and in the last four years the country saw a ninefold increase in that capacity. In addition, the government has introduced a rooftop solar initiative, which promotes the use of solar panels in residential, commercial and industrial buildings through net metering.
Net metering is a billing mechanism that credits participants in the solar energy system for the electricity they add to the grid. As of September 30, residential solar projects were to get a 30% subsidy. Thus the owner can recover the cost within four to five years. There are also other benefits; the owner just needs to pay the net amount of the energy consumed and will be credited for excess generation. The rooftop solar program is what is driving India’s renewable-energy efforts.
India may have overcome the issue of price per unit for commercial projects with a record low solar tariff but the high GST coupled with 25% import duty on solar panels has hit the industry hard and only adds uncertainty over whether the national target can be achieved.