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India's Push For Domestic Solar Manufacturing Will Support Solar Growth


Fitch Solutions Sector Intelligence  

 

    THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

    India's Push For Domestic Solar Manufacturing Will Support Solar Growth

    • 20 Jan 2022
    • India
    • Renewables
    • National Thermal Power Corporation (NTPC)

    Key View:

    • India’s solar power capacity will rise strongly over the coming decade as the government looks to advance its ambitious renewables plan, backed by strong interest from power developers in the sector.
    • We believe that the government’s upcoming tax duties and ban on imports of certain solar equipment will be met with more opposition, as domestic manufacturing will not be ready for an aggressive push.
    • There are downside risks to India's solar power growth, if domestic manufacturing of solar equipment does not match the quantity and quality required for the market.

    India’s solar power capacity will rise strongly over the coming decade as the government looks to advance its ambitious renewables plan, backed by strong interest from power developers in the sector. In 2018, the government of India has set in place an ambitious 175GW renewables capacity by 2022. This was followed up by an announcement, in April 2019 by the Vice President Muppavarapu Venkaiah Naidu, that this target will be revised to 227GW. Of this 227GW, 114GW will come from solar, 67GW from wind, and 31GW from floating solar and offshore wind. This ambitious target is backed by a strong push from the Ministry of New and Renewable Energy (MNRE) through its non-hydropower renewable power project tenders. Specific to solar tenders, the MNRE has been launching them through its subsidiaries, the Indian Renewable Energy Development Agency (IREDA) and the Solar Energy Corporation of India (SECI). IREDA’s 5.0GW solar tender in January 2021 saw an oversubscription by about 2.0GW, while and SECI’s 1,785MW solar tender in July 2021 was oversubscribed by 9.3GW. Respondents to these tenders were prominent power companies, like NTPC, Azure Power, Adani Green, Tata Power, and ReNew Power. These tenders are just a few of the many that both the public and private sector have continued to launch. We believe that the favourable response to these solar tenders is an indication of the market’s receptiveness to solar power projects. As such, we forecast solar power capacity to increase by an annual average of 11% from 59GW in 2022 to 140GW in 2031. This also comes after solar power capacity overtook wind power capacity in 2021.

    Solar Power Capacity Outperforms Other Non-Hydropower Renewables
    India - Non-hydropower Renewables Capacity by Type, MW (2020-2031)

    e/f = Fitch Solutions estimate/forecast. Source: EIA, IRENA, National sources, Fitch Solutions

    We believe that the government’s upcoming tax duties and ban on imports of certain solar equipment will be met with more opposition, as domestic manufacturing will not be ready for an aggressive push. In July 2021, India removed its import tax duties on solar cells and modules from major solar manufacturing markets like China and Malaysia. The duties were at a rate of 15% and were initially set to be removed in July 2020. While there are currently no tax duties on solar equipment, the MNRE announced that it will introduce it again, at a rate of 25% for solar cells and 40% for solar modules, with effect from April 1 2022. This will be on top of a ban on imported solar panels to be introduced in April 1 2022 as well. We believe that this is a move by the government to push for domestic manufacturing of solar equipment. This will reduce India’s vulnerability to supply chain disruptions and subsequent project delays, as this was the case in 2020 due to international trade restrictions arising from the Covid-19 pandemic. While this is largely a positive step to spur the development of solar manufacturing capabilities in India, the market might not be ready for such an aggressive push yet. In 2021 alone, India still imported more than 80% of its solar cells (unassembled) from China, which amounts to around 604mn units. Whether domestic manufacturers can match this amount imported remains to be seen. In addition, India’s Solar Power Developers Association and National Solar Energy Federation have voiced their discontent with the implementation date of the duty, with the latter seeking for a deferment of the date to October 1 2022. It remains uncertain if these duties might be postponed or subjected to change, but we believe a postponement is unlikely, given that MNRE has given a long notice period (since early last year). Furthermore, MNRE has also announced that it will only allow use of solar panels made domestically, which was well received by domestic solar manufacturers. Overall, we believe these duties will spur an acceleration in domestic manufacturing of solar equipment, amid minor expressions of discontent from solar power project developers.

    Most Of Solar Cells Imports Are From China
    India - Import of Solar Cells by Market (FY2016/2017-FY2020/2021)

    Source: Ministry of Commerce, Fitch Solutions

    There are downside risks to India's solar power growth, if domestic manufacturing of solar equipment does not match the quantity and quality required for the market. India’s robust solar power capacity growth has been historically dependent on quality solar equipment imports from China, Malaysia, Thailand and Vietnam, all of which have had duty taxes imposed on their solar cell and module imports in recent years. Despite these taxes, solar developers have continued to choose the imported equipment, due to a belief that imported panels are better in quality. Going forward, as duty taxes grow higher and policies on solar equipment imports grow stricter, domestic manufacturers will need to accelerate their manufacturing quantity and product quality. If domestic manufacturers are unable to meet the quantity and quality required by developers, India risks a supply and demand mismatch. Therefore, this remains a downside risk to our short-term growth forecasts, though we expect the manufacturing industry to overcome as private companies, like Reliance Industries, invest into India's renewables manufacturing space. Additionally, MNRE has set in place quality assurance processes for solar manufacturing to ensure that domestic solar panels meets quality standards set by the International Electrotechnical Commission. As such, India is still on the trajectory for strong solar power generation growth, from 93TWh in 2022 to 221TWh in 2031.

    Strong Solar Power Generation Growth
    India - Solar Power Generation, TWh, & Growth % y-o-y (2021-2031)

    e/f = Fitch Solutions estimate/forecast. Source: EIA, IRENA, National sources, Fitch Solutions

    This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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