Shadow over solar
The Director General of Safeguards’ recommendation of 70 per cent ‘provisional safeguard duty’ on solar cells and modules has whipsawed an industry, which is just growing into adolescence. Prices of electricity produced by solar power plants have been dropping in the recent times, and it was beginning to look they would stabilise at around ₹2.50 a kWhr, a price that would make the utilities smile.
And now comes the safeguard duty, like a pebble dropped into a tranquil pond. If notified at the recommended level, the duty would raise solar prices to more than ₹4 a kWhr, wiping the smile off the face of utilities. Those affected by the duty – the companies who produce solar power – are sure that at these prices, the utilities would be less sanguine about buying solar power. This, in turn, would derail the blossoming solar movement in the country.
From the zygote it was in January 2010 when the Jawaharlal Nehru National Solar Mission was launched, giving the country a target of 20,000 MW of solar capacity to be put up by March 2022, the solar industry had, by the end of 2017, grown up into a handsome teenager. When the NDA government assumed office in May 2014, it upscaled the target to 1,00,000 MW, splitting it into 60,000 MW of large, ground-mounted solar plants and 40,000 MW of rooftop plants. While the rooftop part of it is getting nowhere (982 MW set up), the ground-mounted segment has done rather well, reaching 16,070 MW by December 2017. Capacity additions have accelerated in the last two years and there is promise of a lot more in the next four.
Domestic or imported
But nearly 90 per cent of the installations has come up with imported cells and modules. (The few) domestic manufacturers of solar cells and modules are sore that “their” market is being usurped by overseas competitors, and have been whinging about it for long; the energy companies say they buy from whosoever gives them the better and cheaper products.
Some manufacturers have expressed shock at the safeguard duty, but really the duty’s coming has been in sight for some time. However, the quantum – 70 per cent – has made the entire industry sit up in disbelief, and it is generally assumed to be a posture, before the Government would hear the other side and soften to more moderate levels.
Now hectic lobbying is underway too, but it seems inescapable that there shall be a safeguard duty and consequently there will be a rise in solar energy prices.
The DGS action has raised several questions. First, should there be a safeguard duty at all? Global trade rules allow a country to impose the duty if there is a “sudden surge” in the imports of the product and the sudden surge has demonstrably caused injury to the domestic manufacturers. In the present case, imports have been going up hand-in-hand with market growth. During the ‘period under investigation’, which is 2014-15 to 2017-18 (annualised), market share of imports went up from 86 per cent to 90 per cent — hardly sudden.
And there seems to be little evidence of the imports having caused injury, as a look at the financials of three of the five petitioners shows. Indo Solar’s turnover went up 49 per cent between 2014-15 and 2016-17, from ₹295 crore to ₹443 crore, with 17 per cent EBIDTA margin. The company made a loss due to interest costs, though. Likewise, Jupiter Solar Power’s turnover more than doubled during the period, to reach ₹290 crore in 2016-17, when the EBIDTA margin was 22 per cent. Websol Energy’s turnover rose by a modest 4 per cent, but its EBIDTA was 28 per cent. What injury, ask energy companies.
These manufacturers say that their improved turnover was due to the existence of the ‘domestic content requirement’ (DCR) scheme, which reserved a slice of the market for locally-made cells and modules (cells are used to make modules). The DCR scheme has since been scrapped because the US successfully objected to it at the WTO. However, there is little doubt that even without the scheme, the Government would be able to support domestic manufacturers, by informally asking the companies it owns to buy local.
Indo Solar recognises this. Its annual report for 2016-17 notes that “the company will be seeing a turnaround in the financial year 2017-18 keeping in view the certain measures taken or expected to be taken by the Government in support of the domestic manufacturers in India viz. Central Public Sector Undertakings to replace the Domestic Content Requirement policy.”
Further, surge in imports have happened due to the inability of the domestic manufacturers to supply quality products, say energy companies. They point out that this has been conceded by none other than the Ministry of New and Renewable Energy. In a recent ‘concept note’, the Ministry says that the existing domestic capacity “is not being fully exploited because of obsolete technology as the existing capacity is mainly under the conventional technology of multi-crystalline Al-BSF (Aluminium-Back Surface Field) solar cells, which have efficiency limitations. Very few players have ventured into the superior PERC (Passivated Emitter Rear Cell) technology.”
Energy companies ask what is the need for a hurried safeguard duty when another arm of the Ministry of Commerce, the Directorate-General of Anti-dumping and Allied Duties, is examining whether some overseas exporters are selling below their costs in India, meaning to vanquish the domestic Indian manufacturing base.
It is also noteworthy that the larger Indian manufacturers, such as Vikram Solar and Waaree, have opposed the move through their All India Solar Industries Association (though, ironically, Waaree’s Chairman and Managing Director, Hitesh Doshi, who is one of the directors of the Association, has welcomed the move in his personal capacity.) Unlike in the case of anti-dumping duty, the call for safeguard duty has not been universal.
If the safeguard duty is imposed, more jobs will be lost than protected, solar prices will rise. Jasmeet Khurana, an independent solar consultant based in Delhi, calls the 70 per cent safeguard duty “ridiculous” and says it would “completely derail” the Solar Mission.
China, the target?
Finally, there is a curious kink in the saga. Imports of cells and modules from all developing countries other than China and Malaysia have been exempt from the safeguard duty. Most of the imports comes from China and many Chinese companies have manufacturing bases in other developing countries, notably Taiwan and Thailand. Trina Solar, the largest Chinese seller of products in India, has a base in Thailand. So, what purpose does the duty serve? Some wonder if there is geo-politics at play. Is the recommended duty Government of India’s indignant riposte to the US, for winning the case against India at the WTO? Notably, the American company, First Solar, has a plant in Malaysia from where it sells into India.