India: Domestic Solar Pv Manufacturing Industry Plagued By Disputes, Trade Tensions And Uncertain Future

In June 2015, the Ministry of New and Renewable Energy ("MNRE") announced that the total solar PV cell and module manufacturing capacity in India touched 1386 MW and 2756 MW respectively. This may seem significant from the environmental standpoint, however, the rise has been gradual despite the implementation of the Jawaharlal Nehru National Solar Mission ("JNNMS") which was launched on the 11th January, 2010, to achieve 100 MW of solar generated power by year end 2021-22. To achieve the said target under the National Solar Mission, the Ministry laid down year-wise milestones, including targets of 2,000 MW for the current year and 12,000 MW for the coming year. The manufacturing capacity utilization for domestic cells and modules manufacturers does not even come close to this required capacity. According to an MNRE report, domestic cell and module manufacturers utilize 297 MW and 1304 MW of their respective cumulative manufacturing capacities. As a result of this, the promoters and investors have been driven to distress, especially those that had planned to benefit from the launch of programs like the JNNSM. Domestic manufacturers, among other thing, allege that the high demand for imports is to be blamed for their capacity underutilization.

The foreign solar cell and modules markets have experienced similar setbacks due to oversupply of products, low margins and drop in cost of raw materials, cells and modules. However, demand for imported solar cells and modules has been significantly higher in India due to better cost effectiveness, quality and efficiency compared to the domestically manufactured products.

In order to achieve increase in domestic manufacturing capacity and utilization to levels required to meet annual targets under the National Solar Mission, also envisaged in the 'make in India' plan by the current Government, domestic content requirement ("DCR") of cells and modules was launched for a portion of projects undertaken under the said Mission. However, none of the policy initiatives at the state level (Gujarat, Rajasthan, Tamil Nadu, etc) mandated any DCR. Despite the said initiative, the domestic solar cell manufacturers continued to see sporadic and low levels of utilization of their manufacturing capacity over the years and most of the solar cell manufacturers recorded losses in their quarterly and annual reports since starting the manufacturing business. They attribute their losses, among other thing, to high cost of production and capital expense, decline in exports, and demand for imports.

In response to the DCR, USA, in February 2013, filed a complaint with the World Trade Organization (WTO) against the DCR provisions in JNNSM stating that DCR was against international trade agreements. On February 24, 2016, the WTO found and declared that DCR was imposed in violation of the Trade-related Investment Measures ("TRIMs") agreement and the 1994 General Agreement on Trade and Tariffs ("GATT"). India's continued negotiations with the United States and offers to limit DCR to projects awarded through solicitations also failed. In response to the above finding, India appealed against the order of the lower panel, invoking the United Nations Framework Convention on Climate Change as part of its defence to continue with the domestic content requirements. In India, similar response to the imposition of DCR was seen from Indian project developers and module manufacturers who allege that the projects have become economically unviable for them. According to these domestic project developers and module manufacturers, imported solar cells offer better quality, efficiency and are cost effective compared to their domestic counterparts.

Similarly, imposition of anti-dumping duties has created barriers for free trade and the uncertain future has limited interest of investors and project developers, alike, in furthering their hold on the solar industry. In May 2012, US imposed Anti-Dumping Duties (ADD) on Chinese solar imports. In June 2013, European Unionalso imposed ADD against Chinese solar imports to which China responded by increasing the import duties on US and Korean Polysilicon.

As for the Indian solar manufacturers, the Indian Solar Manufacturer's Association ("ISMA") filed a petition on behalf a handful of cell manufacturers (that made the domestic market under applicable) alleging dumping of imported solar PV modules from China, Taiwan, Malaysia and the USA. This anti-dumping allegation put manufacturers of cells and domestic manufacturers and the project developers on different sides with varied interests, since imposition of anti-duties duties was bound to have significant impact on project costs and reduce options available for sourcing quality products for project developers and module manufacturers. While DGAD found dumping by importing countries and imposed duties of $0.48 a unit to $0.81 a unit on the solar cells imported from the said countries, the finance ministry did not impose the same and let the duty lapse in May of 2014.

However, in September 2015, Indian solar cell manufacturers again demanded action against the US, European Union, China, Malaysia and Taiwan for dumping products in India. This application was filed by the same manufacturers with both the Directorate General of Anti-Dumping ("DGAD") under the commerce ministry and Directorate General of Safeguards (DGS) under the ministry of finance. However, no steps have been taken by the Government in this regard as yet.

So, in order to sum up the state of participants in the solar industry, while imposition of anti-dumping duties may deter participants in all forms (cell and module manufacturers, project developers and investors) from entering the industry, implementation of DCR will decrease profitability of project developers and module manufacturers, and, in the event the DCR is not allowed for violation of international trade laws, sustainability of domestic solar cell manufacturers will become even more difficult.

Considering the aforesaid scenario, it is fair to say that despite huge steps taken by the government for increase in solar power generation with a view to fight the good environmental battle, the environment for the domestic solar manufacturers seems to be murky, and the immediate future, bleak at best. However, the future of solar generated power will remain as bright as the sun itself.

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