As India is inching closer to its stated mission of 100 GW installed capacity, it is imperative to become “atmanirbhar” in solar PV manufacturing.
New Delhi: China dominates the global supply landscape across the solar PV manufacturing value chain. More than 60 per cent of the world’s supply of polysilicon, wafers, cells and modules comes from China, while it accounts for only 20 per cent of the demand. This supply is also most economically viable, with cost structures of modules in China being 5-10 cents/Watt lower than those in India, Malaysia, US and Germany. The cost structures have decreased by about 15 per cent year-on-year over the last five years and are expected to decline further, on account of consistent efficiency gains by Chinese manufacturers, making China the factory of the world. China has played a pivotal role in making solar power cheaper and accelerating energy transition, contributing significantly to the decarbonization journey of the world.
As India is inching closer to its stated mission of 100 GW installed capacity, it is imperative to become “atmanirbhar” in solar PV manufacturing. Additionally, the recent evolving geopolitical situation has resulted in trade flows from China coming under intense scrutiny, and possibly heavy protection duties, thus posing an imminent supply risk to developers. Most developers will be revisiting their supply strategy, possibly moving away from China, or even considering self-manufacturing. This presents a unique opportunity for India to push ahead in its solar mfg. journey, and even become a preferred alternate supply hub of the world.
This journey, however, will not be easy and will require careful and concerted effort by the Government and Industry. While we now have “domestic demand certainty”, there is a distance to cover in terms achieving “competitiveness certainty”. Today, India’s mfg. capacity is insufficient and unviable. Of the 2.5 GW demand in 2020, only 15% was met through domestic mfg., with the remaining predominantly sourced from China. Our mfg. capacities are sub-scale, avg. plant size of 0.5-1 GW vs. 3-5 GW in China, under- utilized and are largely focused on cell and modules. Despite a 15% safeguard duty, China sourced modules are 2-3 cents/ W lower than those manufactured in India.
China’s competitiveness is driven by lower cost of power, especially for polysilicon production, higher efficiencies and throughput on account of scale, Govt. incentivization of investment into R&D, mature ancillary manufacturing supply chains and massive subsidization of capex and financing costs. This has enabled China to develop large integrated solar mfg. behemoths such as Longi Solar, JA Solar, JinKo Solar and many others that play across the polysilicon, wafer, cell and module value chain, and are able to sustain fundamentally lower cost structures and higher ROCE profiles.
India will need not one but many manufacturers of the Longi Solar like profile. Even as Chinese manufacturers continue to bring down wafer prices, India’s journey could start with intense focus on cell and module manufacturing, especially as more that 70% of the value addition happens at this stage and even with fundamentally higher wafer prices in the medium term, the economics of the end-product may not vary much.
While China’s competitive advantage is driven by “scale efficiencies”, India will need to pivot its competitive advantage on “innovation efficiencies”, replicating the China model will not work.
Four key imperatives are critical for India to compete and win against China. First, India should focus on not just replicating current manufacturing efficiencies but create the ability to continuously drive down cost curves and build sustainable competitiveness, akin to European wind turbine manufacturers, who have sustained a competitive edge over the longer term. Second, India should bring the best of the world to India – actively engage not just domestic players but incentivize the best in class global manufacturing companies to come to India and participate in the solar manufacturing journey of the world’s second largest market. Third, India should lead with “manufacturing excellence” and not “infrastructure excellence”. Dominance in the solar manufacturing will be enabled by a “build and continuously innovate” cutting edge manufacturing mindset as opposed to a “build and forget” infrastructure provider approach. Lastly, India should invest in creating a fundamentally mature supporting ecosystem including development of robust supply networks, locking long-term lower cost supply agreements, subsidies on cost of power, financing and capex, incentives for R&D – akin to China’s front runner R&D programme.
Additionally, the Government must play a critical role through more domestic mfg. linked tenders, with careful and creative price discovery mechanisms to promote domestic manufacturing yet encourage innovation and efficiencies. Domestic manufacturers and developers, on the other hand, must be open to at scale plays, R&D investments/ refreshes, innovative multi-stakeholder partnerships, creative supply agreements and tender structures.
This will enable India to truly deliver the “atmanirbhar” promise, generate large scale employment, become self-sufficient to achieving its solar energy targets, and embark on the journey from China “dependent” to globally “dominant” in solar PV manufacturing.
[This piece was authored by Vishal Mehta, Managing Director & Partner & Head-India, Power and Renewables; and Sumant Wattas, Partner & Senior Member, Manufacturing and Industrial Goods, Boston Consulting Group]
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