Partner, Shardul Amarchand Mangaldas & Co.More From The Author >>
Solar Industry – A Push Towards Green India
Imposition of basic custom duty and introduction of PLI Scheme are big bang announcements, which have been met with cheer and optimism by the Indian solar industry. An enhanced production of solar cells/modules will have to be supported by a healthy demand of solar energy, stable investor sentiment and enforcement of RPO obligations. Further, as India races towards its ambitious renewable targets, efforts must also be made to mitigate any adverse impact that an accelerated progress will have on the environment write Deepto Roy, Partner; and Varnika Mohan, Principal Associate, Shardul Amarchand Mangaldas & Co.
At a time, when the need for tackling climate change and reducing consumption of fossil fuel cannot be understated, it is laudable that India has set a target of installing 175 GW of renewable power by 2022. Despite various initiatives, as of February 2021 India had achieved an installed renewable energy capacity of 94.43 GW and there is a growing view amongst the industry experts, that India may miss the target.
For a sector, that trots and gallops from time to time, the introduction of Production Linked Incentive scheme ‘National Programme on High Efficiency Solar PV Modules’ and imposition of basic custom duty on solar cells and modules, come in as big bang announcements which will provide the required impetus to a rapid progress.
The PLI Scheme aims to promote manufacturing of high efficiency solar PV modules in India and thus reduce import dependence in the area of renewable energy. One of the key features of the scheme is to incentivize setting - up of integrated plants for better quality control and competitiveness.
The scheme clearly states that preference will be given to manufacturers who propose to set up a fully integrated solar PV manufacturing plant using silicon based technology (starting from the stage of manufacturing of polysilicon, to ingot/wafer to solar cell and module) or fully integrated thin film technology or any other technology.
The intent and objective while appreciable, require a close examination of the supply chain of metals and minerals, required for building solar cells and modules. For one, the minerals required for manufacture of solar cells and modules are not easily available in India and the probability of exploration and extraction thereof in near future is questionable, since the mining industry in India is plagued by its own set of issues. This would mean that India would once again be dependent on import of minerals for building its domestic manufacturing capacity.
A majority of these minerals are available in China and certain African nations and that creates a further challenge due to ongoing geopolitical tensions between China and India. Further, the supply of such minerals will always be subject to regulatory and policy changes in the relevant countries, leaving the Indian manufacturing industry highly vulnerable.
One of the internal factors that poses a challenge to the ramping - up of manufacturing industry is lack of demand due to DISCOMS not complying with their renewable purchase obligations (RPO). Various states have provided waivers in relation to the RPO since the outbreak of the Covid – 19 pandemic. Bihar and Punjab have allowed carry forward of the RPO shortfall. Haryana has waived - off RPO backlogs up to 2019 for distribution companies in the state, whereas Karnataka has extended the deadline for compliance considering the lockdown and loss of revenue. The concern is that while these relaxations have been provided due to the pandemic, some states were not complying with their renewable purchase obligations even prior to the outbreak of pandemic.
A solution to the above is promoting mining activities in India, in a responsible manner, so as to avoid any environmental and social conflicts. RPO will have to be strictly enforced, else an optimistic supply of modules/cells coupled with a lackluster demand will further derail the overall target. Other incentives such as subsidized rates of water and electricity and low interest rates should be made available to the manufacturers. These incentives coupled with the PLI scheme will help put India on the global map.
In addition to the above, the solar industry is also facing other challenges such as re – negotiation of tariff by various DISCOMS. The constant efforts of tariff re-negotiations have led to decline in the investor sentiment. Even when tariffs for solar projects are at a record low in some states, the agreed tariffs have been legally challenged, with leading DISCOMS in India moving the Hon’ble Supreme Court and High Courts to seek relief on renegotiations of the power purchase. State governments are also re – visiting terms that were crystallized through a bid process. Policy and regulatory blues caused by such renegotiations are not conducive to the sector and need to be arrested as early as possible.
Last but more importantly, one must not lose sight of potential environmental conflicts. The recent judgment passed by the Hon’ble Supreme Court to protect the great Indian bustard (GIB) is an important case in point. The criss - crossing of transmission lines with the habitat of GIB has led to a decline of the specie and to arrest the same, the Supreme Court has passed directions requiring installation of diverters and undergrounding of transmission lines. This comes at a heavy cost to project developers, who are dealing with hardships caused by the pandemic.
To avoid such instances, a more conscious planning is required. While renewable projects are exempt from environmental impact assessment, they do impact various socio – economic parameters. A lot of these projects are being set – up in arid and semi – arid regions, which are stressed due to shortage of water supply. Solar panels require cleaning so as to prevent generation loss due to dirt. This requires considerable quantity of water, which is around 2 litres per panel per cleaning cycle. Depending on the number of panels installed, a 1 MW plant could use up to 13,000 litres of water per month. This number multiplied by India’s future targets, gives a clear indication of the volume of water required.
The government, developers and all stakeholders will have to consider and plan for environmental contingencies.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
Around The World