Saturday 18 July 2020

Sandwiched between COVID and Economic Sanctions: Is India’s renewable energy on right track?



Prime minister recently inaugurated allegedly India’s largest solar plant of 750 MW in rewa[1]  boasting it’s ability to be a global green energy hub. It is specifically flattering because of its timing, at a time when a wave of pessimism in the energy sector is grasping  this comes as a testament of Indian’s renewable energy potential and dedicated energy policy.  However, today the Renewable Energy Industry is fighting battles on two fronts, one with the pandemic and other against Chinese aggression,  by responding through economic retaliation, all of  which we shall discuss objectively in the course of the article.

The COVID 19 Pandemic has had a fatality on almost everything in this world which coerced us, humans, to introspect way of life and governments, to rethink & change policies. Amidst all of its horrors, the ominous mark which it has left on the economy is dismaying and Power/Energy sector is not alien to the havoc of the virus. According to a report[2], India already witnessed a decrease in demand for power by 25-30 Percent in May-June which if coupled with reduced collection may adversely impact Distribution companies by creating a cash gap of approx. Rs 40,000 cr and it can go worse[3] . In southeast Asia manufacturer rely heavily on China for its ‘cheap’ raw material to the solar industry, which due to this respiratory illness has significantly affected and this strain on supplies will affect the manufacturer adversely consequently leading  to increased prices .As an architect of the International Solar Alliance[4] and to live up to its commitment of producing 175 GW of Renewable energy by 2022[5], India however had to show leadership not only to tackle the effects within its territory but also  in low- and middle-income countries in Southeast Asia

India, even in such daunting times, has fared reasonably well owing to measures it took through MNRE like an extension of deadlines to the manufacturers by MNRE on contracts invoking force majeure clause.[6] Similarly,  The Reserve bank of India also took fiscal measure on a cut of repo rate to 4.4% and provided a three-month moratorium and these measures by MNRE and GOI has helped to provide a cushion to the industry in the age of ‘new normal’. Hence even in these scary circumstances, there are rays of hope for the Renewable energy Industry in India to achieve energy accessibility to all at an affordable price and realize the Vision of 2040 laid by New Energy Policy of Niti Ayog in 2017[7] An increase in share of renewables in energy basket from under 10 Percent to well above that level between the pre lockdown time indicates that the supply from renewables was not curtailed by utilities which is one of the many positives industry shall draw motivation from.[8]


While these measures have given the industry a hope for a revival of energy transaction, looking beyond the horizon of ambitious goal of achieving 175 GW Renewables Energy (100 GW Solar of which 40 GW Rooftop Solar PV) is becoming hard to scale. As per, India 2020 Energy Policy Review, India has emerged as a global leader in renewable energy, notably in solar power. By end of November 2019, grid-connected renewable electricity capacity had reached 84 GW, including 32.5 GW from solar PV and around 37 GW from onshore wind as well as small hydro.[9] but are these also indicative of trends of production in next two years , is the real question.


This is becoming increasingly challenging because of our neighbor China and the policy which MEA in coherence with MNRE has taken in either to check dumping of cheap Chinese solar product in India or in national interest owing to how the events unfolded recently. It is pertinent to note here that,  China virtually controls the entire “value chain” from silicon to a module and it supplies almost 85% of solar products to the solar world and hence trade with China holds great stakes .These cheap products have been one of the reason production has grown by leaps and bound here but price of solar energy has reduced drastically from Rs 17 when in 2010 first National Solar Mission was launched to Rs 2.44 in the latest bid . Now, recently India announced to impose 20-25 % of customs duty on solar modules and 15% on cells, making it 40% for both, from August 1, 2020[10]. Earlier a safeguard duty was imposed by the ministry of 25% on import of Solar Panel from China and Malaysia with a pretext that domestic players are at disadvantage and are not able to compete with foreign market in India’s nascent industry as these imports have had serious Injuries to domestic players and was in the public interest to impose safeguard duty[11]. In the current decision, however, the ministry is also giving exemption to manufacturers in form of a “pass-through” which is,   Chinese imports for public solar projects will be exempted from duty if power purchase agreements ( PPA) are signed before the implementation of duty, which is proposed from August 1 this year. This step in no manner serves the benefit of domestic producers as they will have no orders for the next 2-3 years and this can potentially add more woes to them amidst the pandemic.[12] instead  it will additionally  cost the government of India nearly 50,000 Crores in foreign exchange as per the All India Solar Industry association (AISIA) . Safe to say,  tariff impositions have never really worked, in a year since the safeguard duty was imposed in 2018, imposition there were reports which identified the inability of such step to propel the domestic market and instead had stalled the major projects to circumvent the two years’ time frame according to  Bloomberg[13]


The sanctions, therefore, are vexing the industry in the form of decreased import of solar PV increased economic burden in foreign exchange, and leaving the domestic producers in distress at time when he industry is trying to recover from the jolt of a pandemic.  To ensure continuous progress in the growth of renewables, auction design, grid connections and the financial health of the power distribution companies (DISCOMs) are critical elements for reform needed this hour.  Its also time where we need to provide the escape velocity to the sector and these trade sanctions are certainly not helping the cause .India is a country that can enhance its energy basket and secure its energy access and be the leader of green energy in the world making India, as PM said ‘aatmnirbhar’ in energy sector.

 

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[5] PTI, India to achieve 175 GW renewable energy ahead of 2022 deadline, The Hindu Business line (Feb 28 2018) https://www.thehindubusinessline.com/economy/india-to-achieve-175-gw-renewable-energy-ahead-of-2022-deadline/article22838424.ece

[6] Office memorandum, MNRE Dated 20th March 2020, https://mnre.gov.in/img/documents/uploads/file_f-1584701308078.pdf

[11] Staff Reporter, India levies 25% import tariff on Chinese, Malaysian solar panels , Asian Power,(July 18 2018) https://asian-power.com/regulation/news/india-levies-25-import-tariff-chinese-malaysian-solar-panels

[13] Anindya Upadhyay, India Solar Duty Fails Domestic Producers as Demand Dwindles, Bloomberg, (Jan 30 2019) https://www.bloomberg.com/news/articles/2019-01-29/india-solar-duty-fails-domestic-producers-as-demand-languishes.


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