indias-solar-growth-story

Context: India has made significant strides in generating capacity for solar energy in the last few years. 

  • The large-scale adoption of renewable power, including a serious push for solar, is crucial for India’s clean energy transition goals. Though India has seen rapid growth in the solar industry, the road ahead is replete with challenges.

Background:

  • As per India’s Nationally Determined Contributions as per the Paris Accord on Climate Change, India made a pledge that by 2030, 40% of installed power generation capacity shall be based on clean sources.
  • It was determined that 175 GW of renewable energy capacity will be installed by 2022. 
  • This includes 100 GW from solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro power.
  • India is a big market and a lot of countries are attracted towards it in terms of One Sun, One World, One Grid and International Solar Alliance.
  • The renewable energy capacity in India is currently 136 Giga Watts, which is about 36% of its total capacity.
    • India is targeting about 450 gigawatts of installed renewable energy capacity by 2030 and, of that, a lion’s share – 280 GW (over 60%) – would come from solar.
  • Over the last five years, India has added around 34 GW of solar power installed capacity.

Government initiatives

  • Domestic module manufacturing started picking up pace in India in 2010 with the announcement of the National Solar Mission, an initiative by the Union as well as state governments to promote solar power.
  • The mission required bidders to use solar photovoltaic (PV) modules manufactured domestically in the first-ever solar tenders of 150 megawatt and 350 MW. 
  • In 2012, the Modified Special Incentive Package Scheme was launched to provide financial aid via subsidy grants to local players.
  • The government introduced certain measures such as the Domestic Content Requirement and the safeguard duty to dampen the influx of cheap imports.
  • Later, schemes were launched to reserve 50 per cent of the project’s bid capacity for solar cells and modules manufactured indigenously, while allowing the remaining 50 per cent capacity to be set up using imported modules.
    • But this was challenged in the World Trade Organization by the United States. As a result, it was stopped in January 2018.
  • IREDA has invited bids for setting up solar manufacturing units under the government's ambitious production linked incentive (PLI) scheme. 
    • The ₹4,500 crore PLI scheme for solar photo voltaic modules will help India ramp up its domestic manufacturing capacity.
    • The Indian Renewable Energy Development Agency (IREDA) is a Non-Banking Financial Institution under the administrative control of this Ministry for providing term loans for renewable energy and energy efficiency projects.
  • Pradhan Mantri- Kisan Urja Suraksha evam Utthaan Mahabhiyan: PM- KUSUM aims to provide financial and water security to farmers through harnessing solar energy capacities of 25,750 MW by 2022.
  • The government has been trying to ramp up domestic manufacturing through various steps, including imposing Basic Customs Duty from 2022. 

Solar photovoltaic (SPV) cells convert solar radiation (sunlight) into electricity. A solar cell is a semi-conducting device made of silicon and/or other materials, which, when exposed to sunlight, generates electricity.

  • Depending on the kind of technology used, a solar module typically requires materials such as glass, silicon, copper, silver, aluminium, cadmium, tellurium, indium, gallium and selenium.
  • South Africa and the Democratic Republic of the Congo account for 70% of global production of platinum and cobalt while China accounts for 60% of global rare earth elements production. 
  • Rare-earth elements are a group of 17 metals that — as their name suggests — form under the Earth's surface and are difficult to find and extract. But they are crucial to the tech and defense industries; rare-earth metals have unique magnetic, heat-resistant, and phosphorescent properties that no other elements have

Challenges:

  • The PV industry has experienced several rounds of price increases since the second half of 2020, from polysilicon to materials such as steel, aluminium, copper, PV glass and films.
    • At the center of the crisis is polysilicon, an ultra-refined form of silicon, one of the most abundant materials on Earth that is commonly found in beach sand. 
    • As the solar industry geared up to meet an expected surge in demand for PV modules, makers of polysilicon are unable to keep up.
    • Escalating prices for freight and transportation due to supply chain bottlenecks developed under the novel coronavirus disease (COVID-19) regulations is another reason for the rise in PV prices.
  • India has seen multiple changes in duty regime on imported solar cells and modules. For a sector, which is dependent on imports, this has been a major deterrent while bidding for projects or computing a valid tariff.
  • The unit costs of solar power have fallen and solar energy has become increasingly competitive with alternative sources of energy.
  • Most of the central government initiatives could not catalyse a nation-wide movement towards the indigenisation of the PV value chain in the desired manner
  • There are considerable techno-economic risks involved in the setting up and operation of module manufacturing facilities in India.
  • The Indian solar industry relies heavily on imports of important components such as solar cells, modules and solar inverters.
    • According to the Indian government’s data, India imported solar wafers, cells, modules and inverters worth $2.55 billion in 2019-20.
  • Insufficient domestic capacity: At present, India’s domestic manufacturing capacity is not enough to fulfil the solar target of 280 GW.
    • Lack of financing support, inconsistent government policy, lack of scale and competition from low-priced Chinese imports have undercut India’s domestic module manufacturing growth.
  • The demand for indigenously made solar cells is generally low because module suppliers demand cells of higher grade (in terms of wattage, efficiency, etc). Given these factors, domestic module suppliers prefer imported cells of superior quality.
  • High targets: To get to the stated 2030 solar targets, India needs to install more than 250 GW of solar energy capacity in 10 years, or 25 GW of solar energy capacity a year. 
    • This is more than twice what India has been achieving in recent times: the country has added around 34 GW of solar power installed capacity over the last five years.
  • Delayed payments: Power distribution companies (discoms), which mostly are owned by state governments, have been delaying payments to plants supplying solar power. 
  • Weak investor sentiments: Public and private sector banks too are reluctant to lend. Conditions to borrow from Centre-owned financial institutions like the Indian Renewable Energy Development Agency Ltd and the Power Finance Corporation, are not conducive and foreign funds are difficult under current regulations.
    • Overall, the large-scale solar sector requires Rs 1,20,000 crore investment to meet its 60 GW large-scale capacity instalment. (The remaining 40 GW is to be met by rooftop installations.)
  • Goods and services tax (GST): Since many projects were calculated without taking the tax into account, GST became an additional burden and turned the projects unviable.
    • Blocked reimbursements: State governments refused to pay and instead approached the Appellate Tribunal For Electricity. 
    • Improper tax provisions: GST tax solar projects assuming 30 per cent of the sector’s cost as ‘services’ and 70 per cent as ‘goods’. But ‘services’ are just 10 percent of what the sector does.
  • Land acquisitions are a major worry for large-scale solar projects.
  • Environmental concerns: Also, the mining activities for rare earth metals, across the world, could end up triggering more social and environmental conflicts as many past experiences show that it leads to problems with local communities and severe pollution.

Way forward:

  • India needs to manoeuvre global supply chain issues, irrespective of geopolitical realities and mining concerns, impacting the producers of major minerals required in the solar industry.
    • India requires millions of solar modules and every solar module would need a steady supply chain of all materials required for its manufacturing as well as for batteries.
  • India needs to develop domestic solar manufacturing capacities and reduce its dependence on imports to avoid disruption in future.
    • The focus on achieving self-reliance has taken India toward the decision of “scaling up domestic manufacturing” which would also enable India to “export solar modules”
  • Improvements in the manufacturing process, increase in efficiency and development of new products can significantly reduce the mineral requirement to produce every MW of renewable energy equipment.
    • Recycling should be used as an important tool to recover critical minerals which may be difficult to procure in the international markets.
  • Estimating the mineral requirement across the renewable energy manufacturing value chain will help the government in taking a strategic decision on which technology and manufacturing step to support.
  • Long-term policymaking to ensure that disputes with countries such as China do not derail its ambitious renewable energy targets.

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