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ALL INDIA INSTALLED CAPACITY

ALL INDIA INSTALLED CAPACITY

Wednesday, August 24, 2011

Think global


The Indian solar power equipment industry, under threat from cheaper Chinese imports, is seeking protection. The government provides huge subsidy to support capacity addition in solar power generation. The domestic industry's argument is that the government should financially support development of indigenous manufacturing facility as it would help generate local jobs. But developers, on the other spectrum, want cheaper equipment because it helps them to quote competitive tariffs and bag projects.
Significantly, equipment is the main determinant of tariff in solar power plants, unlike in coal and natural gas-based generating stations where fuel accounts for 75-80% of the generation costs. That makes balancing the interests of local equipment manufacturers and developers a tough job for the government.
“Increased private investment and accessible and affordable power for the end-consumer are the twin challenges of our power sector. On the equipment availability front, the government's policy options are limited,” said Sanjay Kaul, president, University of Petroleum and Energy Studies, Dehradun.
“The global pricing for solar PV equipment is led by China. Indian pricing has to be competitive to cater for the global market. It is Utopian to assume that the entire output will be absorbed in India,” Shubranshu Patnaik, senior director, energy & resources consulting, Deloitte India, said. “Chinese manufacturers have the advantage of cheaper capital and large-sized operations. The Indian government can look at providing input subsidies to support its solar equipment industry,” he said.
The central government has envisaged adding 20,000 MW grid-connected generation capacity in solar by 2022 under the Jawaharlal Nehru National Solar Mission (JNNSM). Besides, states are adding solar generation capacity on their own.
While there is a local content stipulation for components in the JNNSM, which targets capacity addition of 1,000 MW by 2013 under the first phase, states have not stipulated any such conditionality. That leaves little protection to local manufacturers.
China is a global price leader in solar photovoltaic equipment and holds more than 50% share of the market. Chinese manufacturers are supported by the cheaper cost of capital and large size of operations. According to industry sources, Chinese equipment are 25-30% cheaper compared with equipment supplied by Indian manufacturers.
The local thermal power equipment industry also faces similar tough competition from cheaper Chinese imports. The marketshare of BHEL was impacted when Chinese players entered the Indian market in 2003-04. But the government did not impose any curbs on Chinese imports.

A positive effect of Chinese competition was that BHEL significantly improved its operational efficiency and cut manufacturing costs. Its equipment are more energy efficient than Chinese. It is expected to catch up soon with the Chinese on price. Solar equipment manufacturers can learn valuable lesson from BHEL's successful response to Chinese competition. There is no reason why solar equipment manufacturers cannot emulate BHEL.
“Protection or preferential measures, conditional subsidies and import restrictions provide only an interim period to the local manufactures to become competitive and achieve economies of scale,” Kaul said.
If Indian manufacturers have to stay in the business, they must learn to compete with Chinese suppliers. Since the size of the capacity addition programme in India is not big enough to scale up or absorb all domestic production of equipment, Indian suppliers should look at tapping the overseas market, which would help them scale up their operations and achieve economies of scale.
“Perhaps the next stage of equilibrium lies in policy measures and reforms directed at a manifold increase in power sector investments and capacities to create enough room for local and international players. Domestic manufactures also need to become far more competitive and responsive to the private players to consolidate their market position,” said Kaul.

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