India and China: The contrasting march towards solar power targets

by Arvind Yadav

 

India’s solar ambitions took a severe blow in February when, in a ruling by World Trade Organization (WTO), the panel found that the Domestic Content Requirement (DCR) imposed under India’s national solar program is inconsistent with its treaty obligations under the global trading regime. This may turn out to be critical for India’s plans to achieve 100 GW of solar capacity, especially when the industry is already suffering from a crash in prices of solar panels in the global market, diminishing of demand in foreign countries.

India’s stand on the matter found support from an unexpected ally – China. Xie Zhenhua, China’s special representative for climate change, stated that, “We support India’s position on this issue and we support their appeal against the WTO’s ruling. Most countries are giving subsidies for development of renewable energy.” China’s stand is rather surprising, considering China is the largest exporter of solar panels to India. China has contributed to 65% or USD 3.2 billion of USD 5 billion in solar-panel imports by India over the past five years. A DCR ruling by India will hurt the Chinese exporters of Solar panels and modules the most.

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Even though China’s support may not mean any significant gain in the WTO matter, India would do well to take inspiration from the Chinese in implementation of their renewable energy targets. China, like India has revised its targets for solar installations to an ambitious level: 150 GW by 2020. That is 50% more than what India is aiming for. However, compared to India, China seems to be more likely to achieve its target. The Country’s installed photovoltaic solar capacity was 43 GW by the end of 2015, the most for any country globally. Over 15 GW of capacity addition was completed in 2015 itself. The installations in 2016 are expected to be around 20GW. In contrast, since 2009, India added on an average less than 1 GW per year to just reach to the 7 GW mark in May 2016. To reach 100 GW by 2022 India would need to add around 14 GW per year.
A look at the Chinese ecosystem for development of solar energy in the industry will give us a better insight into the reason for this stark difference between the two neighbors.

Manufacturing Infrastructure

Chinese solar sector is backed by a huge manufacturing capacity of solar cells and panels. In 2015, solar module production grew to 43 GW, an increase of 21 % over 2014. India has been struggling to promote domestic manufacturing for solar panels and modules. The country has only 1,212 MW of cell and 5,620 MW of module production capacity as of March 2016. Also, Chinese companies make solar panels at a price which is INR 5 to INR 6 per panel cheaper than their Indian counterparts.

Access to Capital

The solar sector of China flourished due to the availability of low-cost loans whereas Indian firms do not have access to such low cost financing. Indian commercial loans can be secured at between 11% and 13% while there Chinese counterparts have to pay less than half that cost. Chinese investment into renewables stood at USD 102 billion while the corresponding number for India is only USD 10 billion.

Centralized Policy Making

India’s federal structure can sometimes make policy implementation challenging. For example, the stats are responsible for balancing supply and demand on their own grid. For this, they require a mix of conventional generators with different levels of flexibility that is adequate to meet the variations in load and renewable supply on their grid. However, all states do not have access to the different resources in the right measure. This makes it difficult for the states to get on board the central government’s mandates regarding renewable energy use.

China follows a much more centralized and top-down approach to energy policy making. The overall policy direction of the country is set by the State Council. The State Council’s various organs, primarily the National Development and Reform Commission (NDRC), formulate and implement most of the important energy policies.

India and China have similar goals in front of them -providing electricity to over a billion people, and at the same time reducing dependence on fossil fuels. At present China is galloping towards its goal and looks much more likely to achieve its stated targets in solar energy. Indian governments – Center and State, financial institutions, IPPs and manufacturers will have to come together in a major way for India to get anywhere close to its solar targets. It seems that India’s solar fortunes may well depend on Chinese imports. It would make a lot of sense, if these imports are not just limited to panels and modules. We could do a lot better by importing ideas and processes, which helped China, become the foremost country in world in terms of deriving energy from the sun.

 

This article first appeared in the print publication of Renewable Watch in June 2016.

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