Last month, the United States filed a complaint with the World Trade Organization (WTO) to challenge India’s domestic content requirements (DCR) for projects under the country’s Solar Mission – a national program aimed at reaching 20,000 megawatts (MW) of grid-connected solar power capacity in India by 2022, enough to power almost 30 million Indian homes at current average levels of consumption. According to U.S. Trade Representative Ron Kirk, the DCR provisions in the Solar Mission that require projects to use solar panels produced within the country, as well as subsidies to solar power producers using domestically manufactured equipment, violate WTO rules prohibiting discrimination in favor of domestic goods.
Phase I of India’s Solar Mission, which draws to a close at the end of this month, requires crystalline silicon (cSi) solar photovoltaic (PV) projects to use Indian-manufactured modules and concentrating solar power (CSP) projects to use at least 30 percent Indian-manufactured equipment. During Phase I, thin film solar PV panels were exempted from the DCR due to the lack of thin film manufacturing within India.
While the United States has long stated its opposition to India’s Solar Mission DCR provisions, the recent timing of the WTO challenge is likely due to the expectation that India will expand the DCR to cover thin film PV modules in Phase II, which starts next month. While there is significant competition in the global cSi PV manufacturing market, the United States is a dominant player in thin film manufacturing. First Solar, an American company, is by far the world’s largest thin film manufacturer. First Solar thin film systems currently make up more than 20 percent of India’s solar PV market. Conversely, solar projects in India accounted for eight percent of the thin film modules manufactured by First Solar in 2011, and the company continues to seek opportunities in the country. A DCR provision for thin film solar projects in India could deal a significant blow to U.S. solar manufacturers, in particular First Solar.
The U.S. complaint to the WTO claims that India’s DCR discriminates against foreign-manufactured solar equipment. India has countered that because the government provides financial incentives and subsidies to solar projects, it has the right to establish a Solar Mission DCR through government procurement exceptions to WTO nondiscrimination rules. In a recent similar case, the WTO ruled against Canada regarding DCR provisions in a green energy plan for Ontario, casting some doubt on India’s prospects. India and the United States have 60 days from the February 6 complaint filing to resolve the dispute through consultations, after which time the United States can request that the WTO review its challenge.
The DCR provisions are consistent with the Solar Mission’s goals of creating a robust Indian solar industry, including manufacturing, and promoting “domestic production of critical raw materials, components and products” for solar power generation. Without the DCR, it would be extremely difficult for India’s nascent solar manufacturing sector to establish itself and grow while faced with competition from countries with mature solar industries like China and the United States.
India is harnessing clean energy ambitions to stimulate domestic solar manufacturing and create green jobs for its people. Rather than engaging in trade disputes to demand continued access to the solar market that India has cultivated through ambitious national policies, the United States should establish its own solar capacity targets to stimulate additional demand for solar equipment.
Shakuntala Makhijani is a Climate and Energy Research Associate at the Worldwatch Institute.