Developing India’s Solar Power Sector: Potentials and Challenges (Part 1 of 2)

Jawaharlal Nehru National Solar Mission Timeline. (Source: Wikimedia Commons)

Over the past several years, India has swiftly developed its solar power sector. Not only has the country already reached its target of 1 gigawatt (GW) of installed solar capacity this year but the cost of domestic solar power is now on par with the cost of electricity from new coal-fired power plants.

For India, this is the first step toward achieving overall grid parity for solar, a goal that the consulting group KPMG projects will be attainable in the country by 2017–19. This estimate is based on two assumptions: (1) that the cost to consumers of conventional power generation will continue to increase, and (2) that the costs of solar power will continue to decrease.

Reaching grid-parity for solar has great significance for India for several reasons:

  • Greater reliance on solar power will boost the country’s energy security and loosen its heavy (and costly) dependence on coal. Contrary to the belief that India has huge domestic coal reserves, the country in fact must import coal to meet its energy demands. Currently, India’s top power producer, National Thermal Power Corporation Ltd, meets about 15 percent of its needs through imported coal, and it plans to increase coal imports to 16 million tons this fiscal year due to local shortage. Already this year, the company has called bids seeking 7 million tons of imported coal to supply its 16 power stations. This import reliance makes India not only politically vulnerable, but also economically shaky. Fossil fuel subsidies contribute to India’s mounting public deficit in the fuel sector—a deficit that has led rating agency Standard and Poor to consider downgrading India’s debt from “investment-grade” to “junk” status.
  • Cheaper solar power will help thousands of Indian homes gain access to electricity for the first time ever. According a 2010 report from the International Energy Agency, the government of India has pledged that the entire nation will have access to electricity by 2012. This plan appears to be ambitious, however, because India would need to install an estimated 200 GW of generation capacity to sustain economic growth of 8 percent.
  • Solar power at grid-parity can help address India’s 9 percent power deficit. The nationwide blackout that affected India this July, which has been attributed to poor grid management and over-drawing of the power supply, is still fresh in the country’s memory. Such problems will likely continue unless new power supplies are identified and connected to the grid.
  • Comparable costs for solar and conventional generation could lead to an increase in solar’s share of India’s power generation portfolio. This in turn would contribute to an associated decrease in the power sector’s greenhouse gas emissions.

Unfortunately, India’s progress under the Jawaharlal Nehru National Solar Mission (JNNSM), a program designed to reach an installed capacity of 20 GW by 2022, could falter because of the current international trade war in the solar market. This trade war has led to a development dilemma for India’s solar power sector: continue to import low-cost solar panels to keep costs down and achieve grid parity, or protect domestic solar industries that cannot yet match the low prices offered by countries such as China? While developing a solar manufacturing hub in the country is a goal of JNNSM, many domestic solar equipment manufacturers are demanding the implementation of entry-barriers, such as Domestic Content Requirements (DCR), and anti-dumping probes against China.

The United States, faced with similar predicaments, recently slapped a 30 to 250 percent anti-dumping duty against Chinese crystalline silicon solar panel manufacturers. Complaints have also been raised by manufacturers in the European Union (EU), where governments are already active on anti-dumping probes.

However, such protectionist mechanisms have the potential to burst into full-fledged international trade wars, resulting in market retaliations and counter-reactions that have adverse impacts for all parties involved. For example, the Chinese ministry has initiated an anti-dumping probe against the United States based on complaints from China’s solar industry that the United States is exporting polysilicon, an essential ingredient in solar panel fabrication, at a heavily undercut price.

In India’s case, the JNNSM has not completely shied away from protectionist policies. It already includes some stipulations for Domestic Content Requirement, although these are limited to crystalline silicon photovoltaic (PV) panels. There are no import restrictions on thin film PV panels, which are favored by Indian solar project developers because they are cheaper. Approximately 60 percent of India’s installed solar panels are thin film, compared with only 14 percent globally.

Advocates of anti-dumping duties on Chinese solar panels point out that India’s imported thin films are sold to project developers at a very low price (between $0.65 and $0.80 per watt-peak), whereas the production cost is higher (between $0.95 and $1.00 per watt-peak). China, the country at the core of this trade controversy, implemented a DCR policy to protect its wind farms in 2003—a move that contributed greatly to China’s becoming the world’s largest wind turbine manufacturer by 2009.

But implementing a DCR in India is controversial. At the international level, the United States, EU, and Japan have filed a complaint with the World Trade Organization (WTO) about a DCR provision that Canada included in its Feed-in-Tariff (FiT) program for renewable energy. The challengers claim that, by imposing a DCR, Canada is creating an illegal trade barrier and flouting the international trade norms and free trade obligations under the 1994 General Agreement on Tariffs and Trade (GATT). The WTO is expected to vote on the challenge in November, and if it rules against Canada, the decision might end DCR as a policy option to boost domestic solar manufacturing—not just in India, but around the world.

Suparna Dutta is a Climate and Energy intern at Worldwatch Institute.

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