Indo-US Trade War Over Solar Modules Heats Up Again

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The United States is reportedly planning to take India back to the World Trade Organisation for violation of a decision regarding incentives for locally manufactured solar cells and modules.

As India’s Ministry of New & Renewable Energy preps a new incentive and support program for domestic solar cell and module manufacturers, the United States is planning to report to WTO that India has acted against a September 2016 decision that found India’s policy in violation of international trade regulations. 

The Indian government had auctioned off a substantial volume of solar power projects with a pre-condition that developers can only use Indian-made solar modules. According to reports, 1,436 megawatts of capacity has been commissioned under this pre-condition, while another 1,000 megawatts of capacity is under construction. Despite the unfavorable decision issued by the WTO, India now plans to auction another 12,000 megawatts of capacity under this pre-condition known as the Domestic Content Requirement (DCR).

The only possible justification behind the continuation of the DCR is what one may call a loophole in the trade regulations. The government may be able to mandate DCR if it is setting up solar power projects itself or through a government-owned entity. NTPC Limited, India’s largest power generation company, may auction 12 gigawatts of solar power capacity to help the domestic solar module manufacturers.

Apart from this dedicated auction program for the domestic manufacturers, the ministry is also planning to provide financial support worth Rs 11,000 crore ($1.7 billion). This possible policy decision comes at a time when two different agencies of the government are considering whether or not to levy anti-dumping and/or safeguard duties on imported solar cells and modules.

According to the ISMA, the share of Indian-made solar cells has dropped to 7% of the total demand in the country. The share of imported solar cells has increased from 86% in FY2014-15 to 90% in FY2017-18. Capacity utilization of production facilities has been on the rise over the last three years but has dropped sharply this year. Capacity utilization topped 72% in FY2016-17 before falling to 51% in FY2017-18.