The proposed 70-per cent provisional safeguard duty on imported solar panels and modules from China and Malaysia, will put 3 GW of under-implementation projects worth over Rs 12,000 crore, at risk. Indian solar market has grown rapidly over the last three years from 3.5 GW at the end of 2014 to 20 GW today. With this staggering progress, India became the third largest solar market in the world and billions of dollars of overseas investments have flown into the country. At the same time, hundreds and thousands of jobs have been created in not only downstream construction and operation activities but also in manufacturing of inverters and ancillary equipment. Many multinational companies such as ABB, Schneider, TMEIC, GE and Hitachi have set up manufacturing operations in India, and a strong sector ecosystem is emerging. All this has been possible largely because of improving technology and falling module prices. That said, domestic manufacturers have had a long history (nearly five years) of conflict against imported solar components, as foreign (Chinese) suppliers continued dumping solar components in India at a much lower rate than existing market price. Therefore, domestic manufacturers requesting the government to safeguard domestic industry growth was a quite valid appeal. However, the Director General (Safeguards) is planning to impose 70-per cent safeguard duty on imported solar panels and cells that have created a commotion within the industry. But, with India's Director General of Safeguards (DGS) proposing a provisional duty of 70 per cent for a period of 200 days on solar cells and modules, the question arises - did Indian government score an own goal? SOLAR TODAY spoke to Indian Solar Manufactures' Association (ISMA) and All India Solar Industries Association (AISIA). Interestingly, both these associations are not on the same page and share divergent views. HR Gupta, General Secretary, Indian Solar Manufactures' Association (ISMA) termed 'own goal'as ridiculous, adding 'this term have no vision whatsoeverö. Gupta foresees this as an excellent move consistent with the decisions taken in USA, Eurozone (EU), Canada, Australia and Turkey. State-sponsored predatory pricing has made a mockery of the solar manufacturing industry globally and eroded all manufacturing worldwide. This needs to be addressed. However, Gyanesh Chaudhary, General Secretary, All India Solar Industries Association (AISIA) has opposed the blanket safeguard duty on import of solar panels and cells, and has said that the levy will badly impact solar manufacturers operating out of the Special Economic Zones (SEZ) across the country. Facing the flak India is a member of the World Trade Organization (WTO). Therefore, the country can impose safeguard duty of foreign imports, once they have curbed or damaged the demand of domestic industry. And as we know, says Karunesh Chaturvedi, Head- Corporate Affairs, Vikram Solar, 'Foreign solar suppliers like China and Malaysia have claimed near about 80 per cent market share (in solar panels) within the domestic industry, it would be fair for India to impose Safeguard Duty on them.' However, besides covering the imports from the foreign suppliers, this new duty is also targeting domestic solar manufacturing units in the Special Economic Zone (SEZ) in India. As SEZs are kept out of Indian customs territories (to exempt custom duties when sold within India), the Safeguard Duty on imported solar components unwittingly falls on SEZ units. Why SEZs should be exempted from duties? It is important to note that Special Economic Zones (SEZ) in India were built to enhance industrial capacity of the country, which will translate into socio-economic growth. To support these industrial setups, government allowed SEZs tax holidays, single window clearance, and lower charges on electricity, water and other facilities. At present, India has 3.1 GW of installed capacity of solar cells out of which 2 GW or more than 60 per cent is situated in SEZs. It should be noted that, out of 8.3 GW of solar module manufacturing facilities of 3.8 GW are situated in SEZs. Hence, the indigenous manufactures situated in SEZ will come under the ambit any blanket duty that will be imposed on solar cells and modules which will make them uncompetitive. In 2016-17, the estimated demand of solar modules was around 6 GW whereas the demand is expected to go up to 10 GW in 2017-18. In such a scenario, more support is expected for SEZ-based units (since they are doing so well) and certainly not safeguard duties. Therefore, it is easy to understand that imposing duties on SEZ based units will only reverse the growth India has shown in green energy sector, delaying its solar dream from reaching its targets. Fundamentally Flawed As per the note released by Bridge to India (BTI), the DGS recommendation is based on a very weak premise that rising cell and module imports have caused an injury to the domestic manufacturers. That is self evident but not, in itself, a reason to protect the domestic industry. Here, Vinay Rustagi, Managing Director, Bridge to India asks some valid questions to Indian government. According to Rustagi, why have the Indian manufacturers failed to scale up, upgrade plants or integrate backwards? Do they have the technical and financial capacity to meet growing demand in the sector? Why is their cost of production higher than the cost of imports? It is a policy failure that rather than addressing these substantive issues, Indian government is proposing to create trade barriers to support domestic manufacturers. Moreover, DGS report expresses concern about loss of jobs in the manufacturing sector. But it fails to take into account the tens of thousands of jobs created in the downstream design, construction and operation of solar plants because of cheap imports. It is very clear that the sector growth - about 900 per cent in last three years - has been largely underpinned by sharp fall in costs. A trade duty of 70 per cent, or even, say 30 per cent, would result in a substantial slowdown in the sector and lead to loss of many more jobs than potentially to be created on the manufacturing side. Impact assessment In 2017, around 4 GW of solar projects were auctioned and these would be under implementation now. Typically, orders for modules are placed with a lead time of one year. Assuming 1 GW of excess inventory to be in transit, about 3 GW of capacities would be yet to tie up their module requirements. These projects were auctioned at low tariffs, so any rise in equipment cost after the safeguard duty would crimp the cushion that developers have to service debt. Says Subodh Rai, Senior Director, CRISIL Ratings, 'The 70 -per cent safeguard duty proposed will also inflate project costs by approximately 25 per cent and crank up viable tariff to Rs 3.75 per unit from around Rs 3 estimated earlier, making solar power less attractive to discoms. That would also be more than the average power purchase cost of 10 out of 14 discoms last fiscal.' 'In this case, the project tariffs would need to increase by about 35 per cent at 70-per cent duty level,'Rustagi adds. Modules account for 55 per cent of a solar project's cost, and 80 per cent of them are imported from China and Malaysia. With few alternatives available, the proposed safeguard duty would drive a sharp rise in the landed price of modules. At the moment, there are about 4,800 MW of tenders awaiting allocation and Ministry of New and Renewable Energy (MNRE) wants to bring out several new tenders in the coming months. Bridge to India (BTI), in a note shared with SOLAR TODAY explain that a final duty of between 30-70 per cent would mean that tariffs would need to go up by between 17-35 per cent, or about Rs 0.45-0.90/ kWh, to maintain financial returns. But some of these tenders have a prescribed tariff ceiling of as low as Rs 2.93/ kWh. The discoms are obviously not keen on tariffs going up substantially from current levels creating uncertainty for all new tenders. There has been a strong sense in the industry that some form of duty protection is imminent for domestic manufacturers. Developers seem resigned to the decision and their best bet seems to be to: delay the final decision as long as possible so that under construction projects are not affected; and or to get relief for projects already auctioned and awarded. But as BTI commented in its report on anti-dumping duty, the likelihood of government granting a simple waiver of duties on projects in pipeline seems slim. 'If such relief is not available, up to 4,500 MW of projects risk becoming unviable and or abandoned,'warns BTI. Job creation Explaining the entire value chain, the recent report of BTI on 'Trade protection for domestic manufacturers is misguided'put-forth how safeguard duty likely to impact the overall job market. The report has estimated job creation at each stage of the solar value chain by collecting primary data from various organisations engaged in manufacturing, project development and operations. Jobs created are estimated in man-years for 100-MW project capacities. 'Our study shows that the upstream value chain creates employment worth 429 man-years for manufacturing components for 100-MW solar capacity,'says the report. Rooftop solar is more labour intensive as compared to utility scale solar because of small project sizes and scattered nature of projects. Assuming that India adds 10 GW of solar capacity every year, split 80-per cent utility scale and 20-per cent rooftop solar, it would generate employment worth 42,900 man-years in the upstream value chain and 273,960 man-years in the downstream value chain. As much as 80 per cent of total job creation is in the downstream value chain. These are domestic jobs created mostly in the remote regions where projects are located. And it is striking that only four per cent of jobs are created in module manufacturing. Other elements of the upstream value chain create far more jobs in comparison. Again, these are all domestic jobs as almost all this manufacturing activity is already based in India. The other way to analyse employment potential of the solar value chain is to consider number of full-time jobs created every year. For annual capacity addition of 10,000 MW, the number of jobs created in year one would be 66,300, split between module manufacturing, BOS manufacturing, project development, construction and operations in the ratio 18 : 46 : 2 : 17 : 16 respectively. But by year 25, the total full-time jobs created would rise to 316,860, split as 4 : 10 : 1 : 4 : 81 respectively. Impact on domestic manufacturers In FY 2017-18, 89 per cent of solar modules used in India were imported from China and other countries. Indian project developers favour Chinese module manufacturers as these are approximately 10 per cent cheaper than domestic modules. The projects using domestic modules did so only because of domestic content requirement (DCR) stipulation, without which, the share of imported modules could have been as high as 95 per cent or possibly, even greater. The domestic manufacturers have been struggling because of their inability to compete on price with Chinese manufacturers. Most of them have sub-scale capacities, high cost base and are completely reliant on imported technology and raw materials. Imposition of ADD or provisional duty exceeding 10 per cent shall enable them to price at profitable levels and increase production. But, the key issue for the sector is whether Indian or other manufacturers would be able to use the opportunity afforded by duties to make investments and create a thriving, competitive module manufacturing sector in India. There is a huge gulf between the scale and technological or operational capability of Indian and Chinese manufacturers. Moreover, the Chinese manufacturers have been expanding internationally to counter threat from trade barriers. Canadian Solar, Jinko, Trina, JA Solar and Talesun are some of the notable names to set up manufacturing facilities in Indonesia, South Korea, South Africa and Thailand precisely for such purposes. They should be able to circumvent duties, at least partly, by routing exports from these manufacturing bases, in turn mitigating the negative and positive impact on developers and manufacturers respectively. Manoj Kohli, Executive Chairman, SB Energy seems to be optimistic and hopeful. 'With the latest MNRE concept paper on 'Make in India' and Solar Energy Corporation of India's SECI's 20-GW expression of interest (EoI) for manufacturing of modules, we are hopeful government will provide a forward-looking policy for manufacturing of both modules and storage batteries,'he told Power Today in an exclusive interaction. Renewable energy needs to follow the automotive model of manufacturing where all components are manufactured in India in hubs like Pune and Chennai and even exported. At the end, power is the engine of economic growth. It contributes to economic growth in countless ways besides creating direct jobs and value. It is a vital input in production of all social and economic activities. Solar power brings other immense benefits to an energy deficit and densely populated country like India - improvement in energy access and air quality as well as reduction in fossil fuel imports. It has advantages that often get ignored -by creating most of the jobs and value in the non-fertile areas where it is deployed, it leads to a virtuous cycle of economic activity in deprived regions. Moreover, the solar technology is still in a relatively early stage of evolution and cost-efficiency curve is expected to get progressively better over time. As per a United Kingdom government study, low carbon and renewable energy technologies have a turnover multiplier of 1.8x and employment multiplier of 1.9x. Average lifecycle greenhouse gas emission from solar power generation is only 85 tonne CO2/GWh as compared to 888 tonne CO2/GWh by coal. In the 2018 environmental performance index (EPI) report by Yale and Columbia Universities in association with World Economic Forum, India plummeted 36 points to 177 (out of 180) from 141 in 2016. According to Greenpeace report, Airpocalypse, 1.2 million deaths occur in India every year due to air pollution, which is almost equal to deaths caused by tobacco usage. As per another report, Assessing the cost of climate change and adaptation in South Asia, produced by Asia Development Bank, if no action is taken to reduce the air pollution, India's GDP will be negatively hit by 1.8 per cent by 2050. Air pollution presents a growing social and economic cost for India. There is no carbon pricing in the country, but the government does need to consider solar power's environmental benefits and design policies to encourage its growth. An argument is also made that heavy reliance on module imports means that India is simply moving its dependency from fossil fuel imports to solar equipment imports. This argument is flawed. Coal imports account for a very significant share (up to 40 per cent) of total value creation in thermal power projects. But module imports account for a relatively insignificant 10 per cent share of value creation in solar power generation. Moreover, once modules have been imported, the fuel (radiation) is free and plentiful for entire life of the solar project. There is no subsequent risk to solar power generation from currency volatility, trade disruption or any other international events. It is important that the government calibrates its sector policies with due consideration to relative merits of the entire value chain without jeopardising the country's immense solar potential. Instead of creating abrupt trade barriers, which seem unlikely to boost manufacturing, the focus should be on improving long-term competitiveness through genuine policy reform, investment in R&D, creation of supply chain and associated infrastructure. Protective measures such as safeguard duties, ADD and basic custom duty (BCD) are meant to help the domestic industry but they can cripple SEZ units and goes against the theme and spirit of Make in India Policy. Quick Bytes