Should India Manufacture Solar Panels?

Should India Manufacture  Solar Panels?

By Benedict Paramanand

It only seems logical but logic, guts or the lack of it, and market dynamics don’t always go together. When you have a mammoth plan to generate 100 gigawatt of solar power by 2022, doesn’t it make sense to manufacture as much equipment as possible locally? What happened to ‘Make in India’ slogan?

Of course, the credit goes to China for bringing the cost of solar panels so low that the cost of generating solar power is almost equal to cost of generating power from coal in 2016. It was double only five years ago and bound to fall further. The big question is – if India starts to manufacture solar panels will it be cost competitive? What could be the price differential between cost of
local and global panels? How much of the higher cost can the government subsidize with the hope that in
the medium and long term, price differential will be marginal? That’s a question no one can answer now.
If the Chinese solar panel prices come down even more, then should India still pursue its local
manufacturing dreams?

Prime Minister’s go-to man, Amitabh Kant, submitted his recommendation to the Government of India early 2016 about domestic solar panel manufacturing. Power Minister Piyush Goel said the proposal would soon be submitted for Cabinet’s approval.

Unlike before, what has given Mr. Goel the confidence is access to finance from the coal cess the government imposed recently. He told CNBC TV18 recently that “he is hoping to develop at least 10 gigawatt of integrated manufacturing capacity – right from the silica wafers and chips and modules and cells and everything.”

He is going to entice state governments to take on these projects in such as way that it would become a ‘plug and play set up for manufacturers. The big issue is the cost of power that they will have to offer since this is a power-intense industry.

The minister is confident that he will achieve the 20,000 GW target by 2022, set by the UPA government, in 2017 itself and will gun for 100 GW during the same period. The solar panel debate is reminiscent of similar debate about manufacturing chips for electronic items for more than a decade now. Even here, China is the world’s supplier and India feels it is going to be dependent even as its market size expands. The massive foreign exchange outgo to China as a result of these imports is a big worry.

Clearly, even if India takes up solar panel manufacturing by the time the facility comes up it will be three to five years. Even if it comes up, can the government force solar energy generators to use domestic panels? In an increasingly competitive world, it is difficult. But this is a silver bullet that any government has to bite at some point or reconcile to the reality that some countries have natural competitive advantage and some don’t.
Focus on what you are good at get the best price for what you are not. It has so far happened –why look at solar panels differently?

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