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India’s DCR Woes

By Aanal Purani

When in the World Trade Organisation, do as the World Trade Organisation says!

The World Trade Organisation (WTO) declared on the 25th of February that the US had won a case against India about the local content rules for solar panels and modules.

Let us rewind a little and see exactly what brought about this conclusion. Initially in 2013, the US objected to India’s initiative to manufacture solar cells and modules domestically, alleging that it promotes local manufacturers and discriminates against American businesses. They also indicated that India’s domestic content requirement (DCR) scheme discriminates against the American solar manufacturers by mandating (and subsidizing) local developers in India (mainly PSUs and all government organizations) to use locally manufactured cells and modules.

Presently, the US Government and its solar fraternity believe that it is a necessitated step towards free trade, and a warning to other countries to avoid protection of the domestic market. Although environmental groups in and around the US feel that this decision might hamper India’s sustainable energy growth potential.

With an objective to establish India as a global leader in solar energy, the country’s Ministry of New and Renewable Energy launched the Jawaharlal Nehru National Solar Mission (JNNSM) in 2010. To promote the local manufacturers, the Indian Government brought in a policy of domestic content requirement, intending to promote local manufacturing of solar components. In case of Phase I Batch I (2010-2011) when solar PV projects were selected, it was mandatory for projects based on crystalline silicon technology to use modules manufactured in India, while in Phase I Batch II, it became mandatory for all the projects, be it thin film or crystalline, to use cells and modules manufactured in India. The table shown below gives a summary of the technology use in Phase I, Batch I and II.

Table – 1

Phase I Batch I – 140 MW solar PV commissioned projects
Technology Capacity (MW) No. Of projects
Crystalline 65 14
Thin-Film 65 13

Table – 2

Phase I Batch II – 340 MW solar PV commissioned projects
Technology Capacity (MW) No. Of projects
Crystalline 70 8
Thin-Film 220 18

Source: State of Renewable Energy in India, A citizen’s report

Further under the JNNSM Phase II Batch I 750 MW guidelines by Solar Energy Corporation of India (SECI), the Government provided for VGF support to developers who opted for DCR as a financial support. The problem here is that even though DCR enables local capacities, any kind of fiscal benefit provided to encourage local manufacturing is likely to be challenged under the WTO agreement as a prohibited subsidy and breaching the principle.

The bigger question here is whether India needs DCR or not? If yes, what are its options post this ruling. Also what should the Government do to save the manufacturers and keep the market viable?

Before we answer this question, let us look at the US. How has it tackled such initiatives in its states? According to a paper published by Timothy Meyer from Vanderbilt University Law School titled, How local discrimination can promote Global Public Goods, it says that out of the 44 states’ renewable programs, 23 violate the WTO’s 2013 decision (here).

Given below is a table from the paper with information of some states having their renewable energy LCR Policy/ Regulations within the United States:

STATE-LEVEL RENEWABLE ENERGY LCRs
State Program name Local Content Requirement (LCR)
California

 

Self-Generation

Incentive

Program

“In administering the self-generation

incentive program, the commission

shall provide an additional incentive of

20 percent from existing program

funds for the installation of eligible

distributed generation resources

Manufactured in California.”

Connecticut Renewable

Energy and

Efficient

Energy Finance

Program

Requires the Connecticut Green Bank

to “establish a renewable energy and

efficient energy finance program . . . .

Said bank shall give priority to

applications for grants, investments,

loans or other forms of financial

assistance to projects that use major

system components manufactured or

assembled in Connecticut.”

Delaware Administration

of RPS

“A Retail Electricity Supplier or a

Rural Electric Cooperative shall

receive an additional 10% credit

toward meeting the RPS for solar or

wind energy installations sited in

Delaware, provided that a minimum of

50% of the cost of the renewable

energy equipment, inclusive of

mounting components, relates to

Delaware manufactured equipment

Illinois Illinois Power

Agency

Renewable

Energy

Resources

Fund

“The Illinois Power Agency

Renewable Energy Resources Fund

shall be administered by the Agency to

Procure renewable energy resources.

Prior to June 1, 2011, resources

procured pursuant to this Section shall

be procured from facilities located in

Illinois . . . . Beginning June 1, 2011,

resources procured pursuant to this

Section shall be procured from

facilities located in Illinois or in states

that adjoin Illinois.”

Massachusetts Commonwealth

Solar II

“Massachusetts Company Components

Adder: To qualify for this adder, the

System Owner must provide evidence

that the modules, the inverter(s), and

any other significant component which

is important to the electricity

production of the project are

manufactured by a company with a

significant Massachusetts presence, as

determined at the sole discretion of

MassCEC.”

Minnesota Solar Energy

Production

Incentive

“Incentive payments may be made

under this section only to an owner of

grid-connected solar photovoltaic

modules . . . who . . . has received a

‘Made in Minnesota’ certificate

Washington Renewable

Energy System

Cost Recovery

Provides investment cost recovery

incentive for: “(A) Any solar inverters

and solar modules manufactured in

Washington state; (B) A wind

generator powered by blades

manufactured in Washington state;

(C) A solar inverter manufactured in

Washington state; (D) A solar module

manufactured in Washington state; (E)

A stirling converter manufactured in

Washington state; or (F) Solar or wind

equipment manufactured outside of

Washington state”

This table is an example of how US supports some degree of subsidies for local renewables in many of its states. Every country would want to set it’s own clean energy future. Such “Buy Local” rules are a standard to motivate new industries which help the country reach it’s target.

If we talk about India, the National Solar Mission program aims to achieve 100 GW of solar installed capacity by 2022. The country has also initiated the International Solar Alliance in collaboration with France. India is strongly keen on going green and doing its part to “save the climate”. Currently India’s total solar PV installed capacity is 5.24 GW, out of which approximately only 10% of the power comes from domestically produced solar panels and cells. This amount practically seems almost negligible. And the US argues that under the domestic content requirement it has suffered up to 90% decrease in its solar exports to India since 2011 (here), which led it to file the case.

What does India and it’s Government have to say about this development? According to a senior Commerce Ministry official of India, who spoke on the condition of anonymity, “This case has brought in several dimensions such as climate change, trade, energy access, domestic manufacturing, and deployment. The ruling has affected India’s ‘Make In India’ program and should be viewed for its long-term implications” (as quoted here).

Mr. Tarun Kapoor, Joint Secretary of India’s Ministry of New and Renewable Energy has commented that, “This ruling will not inhibit any of India’s future plans and that this will not, therefore, cause any dent in the ‘Make In India’ program, because we still have several options to support the domestic industry while remaining within the WTO regulations.”

In conclusion, this is a multi-faceted issue. To answer the earlier stated question whether India needs DCR or not, shall be decided as time unfolds. The need of the hour is to have a structured regulatory approach that will genuinely advance the domestic manufacturers and address their issues, while making their business cost-competitive in the coming time.

Aanal Purani currently works as a Senior Project Fellow at Gujarat Energy Research and Management Institute (GERMI), Gandhinagar. Her area of work consists of policy analysis, database management, solar energy research work, DPR writing, market research and analysis, preparing and reviewing tender documents, and Request of proposals in the field of solar. She also has a keen interest in Corporate Social Responsibility and sustainability related activities, market research. 

 
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