India Completes World’s Largest Solar Tender, Aims To Reduce Chinese Solar Imports

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Even though the fossil fuels sector has been completely ravaged by the coronavirus pandemic, the renewable energy sector has been more than chugging along. The results of a recently concluded mega solar tender in India provides further assurance on the continuing growth in the clean energy sector.

Adani Green Energy Limited (AGEL) and Azure Power have been declared to be the winners of the largest solar tender. This will result in the installation of 12 gigawatts (GW) of solar power generation and 3 GW per year solar manufacturing with an investment pegged at almost US $9 billion.

The tender, organized by the Solar Energy Corporation of India, was a first of its kind as it linked the installation of solar power plants with creating domestic solar manufacturing facilities.

To put this in perspective, India installed 7.3 GW in 2019.

Beyond increasing India’s solar generation assets, the tender also aims to jumpstart competitive solar manufacturing in India to reduce solar imports from China.

Solar Imports In India From China

Broadly speaking, the transition to solar power in India is aimed at three objectives — to reduce electricity costs, achieve a low carbon energy mix, and address its energy security by reducing energy imports.

On the last point there, strategically speaking, over-dependence on China for solar equipment is similar to the current case for oil with the Middle East, thereby subjecting the Indian economy to external geo-political risks.

Recently there have also been several campaigns in India calling for a reduction in Chinese imports due to public outrage on the Indo-China border tensions.

For the past three financial years, FY17, FY18, and FY19, the total value (China and beyond) of the country’s solar imports was US $3,196.5 million, $3,837.6 million, and $2,159.7 million, respectively. Within this, Chinese firms supplied about 80% of the solar cells and modules used in India.

In order to contain this, almost two years back, India imposed a 25% safeguard duty on solar imports from China and Malaysia. But the results have been a mixed-bag. Some developers were reported to have started circumventing the duty by routing solar cells through Thailand and Vietnam.

Not only that, but a report by the Directorate General of Antidumping and Allied Duties, India observed that, “unscrupulous elements are able to import the Chinese goods by circumventing the goods put under anti-dumping framework through misclassification of products.”

The search for loopholes will continue until there is a domestic competitive alternative to cheap imports from China.

Besides energy security, indigenous manufacturing base in India would also help enforce performance contracts, build the foundations of a domestic recycling industry, and not to forget, create jobs.

Tender Innovations by SECI

For quite some time now, the Solar Energy Corporation of India (on behalf of the Ministry of New and Renewable Energy) had been trying to push private sector investments to accelerate the manufacturing of solar PV in India. Its big idea was to bundle large scale solar power generation orders with the requirement to manufacture solar panels in the country.

The genesis of this interesting idea may have been in the bundling of solar and thermal power which had been done earlier to reduce the perceived costs of the former when it was more expensive. (On a tangent there, now that five years have zoomed by, there are talks of “reverse bundling.” That is bundling low cost solar power with the more expensive coal power so that the latter can be sold. Ha!)

On the surface, combining solar generation and manufacturing seemed like a great idea. But the bid deadline had to be extended more than seven times with only one bidder interested.

Adani Green Energy is honoured to be selected by @SECI_Ltd for the largest ever solar development award. It'll create 400,000 direct & indirect jobs and displace 900 Mn tons CO2. Job creation & decarbonization fast converging as unified objectives. https://t.co/BUMgalFenp

— Gautam Adani (@gautam_adani) June 9, 2020

You see, solar manufacturing businesses would require higher equity, while solar power generation projects are built using higher debt. So doing both is a difficult proposition for the project developers currently active in the market.

But with its eyes firmly on the target, SECI did not give up. To sweeten the deal and attract more participation, SECI made a number of changes in the initial bid design. Through a series of iterations several attractive options were added — a tariff of ₹2.93 for the generated power, Interstate transmission charges waivers, a greenshoe option, and others.

Results Of The Tender

Two years since SECI initially started looking, AGEL and Azure Power were announced to be the winners of the tender in January, 2020. Back then both had bid for 2 GW of power generation and 500 MW per year of manufacturing capacity.

And then came the greenshoe option.

Under the greenshoe option, both the companies could opt for an additional capacity to generate solar power and manufacture solar modules in a ratio of 4:1 respectively. Thus AGEL offered an additional capacity of 1500 MW manufacturing and 6 GW of power generation. On the other hand, Azure agreed for an additional capacity of 500 MW solar manufacturing and 2 GW solar power generation.

Thus bringing the tender to its final size of 3 GW solar manufacturing per year and 12 GW power generation.

It is important to note here that even though the bid couples manufacturing and power generation, it is not compulsory for the selected bidders to use PV panels from the yet to be established manufacturing plants.

Will Solar Imports From China Fall?

After the tender results, in an interview to the Economic Times, Gautam Adani, Chairman of Adani Group, forecasted that the solar imports from China would fall and become negligible over the next 3-5 years. He added,

You have to realise that you need to pay some more price to build up the capacity. So as a country, we have to be prepared to pay a little more for self-reliance. How to pay? The government cannot give cash incentives, so there has to be policy intervention such as safeguard duty, anti-dumping duty, customs duty.

– Gautam Adani, Chairman, Adani Group

However he attributed the current additional costs as a short term burden to build self-reliance.

Interestingly, while AGEL has now expanded its operational and pipeline solar power generation assets to 15 GW, its sister company Adani Power Limited is the largest private thermal power producer in India with an installed capacity of 12.5 GW.

AGEL had also developed the then world’s largest single locationm, the 648 MW Kamuthi Solar Power Plant in Tamil Nadu, India.

So, how much can India expect to save by cutting down solar imports from China?

India has achieved about 35 GW of its current solar target of 100 GW by 2022 with a pipeline of 23.7 GW utility-scale projects under development and another 31.5 GW of tenders pending auction. In fact, as per several media reports India has now pushed its aggregate renewable energy target to 450 GW by 2030!

Going by the current costs of utility scale power plants, reducing 10 GW of solar module imports amounts to at least $2.2-2.5 billion worth of import savings. In comparison to this the cost of putting up 1 GW per year of solar manufacturing plant is expected to be about $800 million.

But that’s not all.

Some Other Benefits For India

With the amount of solar power planned in India, strategically the country needs some reasonable manufacturing capacity to avoid over-dependence on China for what is well on its way to become a critical infrastructure.

In doing so, there would be benefits beyond the reliance and resilience resulting from domestic manufacturing capacity.

The 12 GW of solar power plants to be built under SECI’s tender alone would displace the carbon dioxide equivalent to the action of over 480 million trees during the project lifetime. This is equivalent to about a fifth of the carbon sink which India wants to create by increasing forest cover as part of its INDC.

AGEL also claims that its projects under the SECI’s tender will create 400,000 direct and indirect jobs.

Conclusion

It is pertinent to point that these manufacturing facilities may face a risk due to fast changes in solar technology itself, which has forced several manufacturers in India as well as China to close their shops.

In the next leg, the government would probably want to see the current ‘pilot’ snowball into a larger more diversified manufacturing base.

Even back in 2019, as per a report from Mercom India, Waaree Energies (partner of Azure Power in SECI’s tender) and Adani were the leading module suppliers in terms of shipments in the country. Adani’s existing 1.3 GW of capacity in Gujarat (incidentally several consortiums are planning Lithium battery manufacturing facilities in Gujarat) will further consolidate the Group’s position as India’s largest solar manufacturing facility.

Over the mid-term, from a diversification point of view it would be important to nurture other facilities as well.

But for now, it is certainly a time for SECI and MNRE to breathe a sigh of relief. Though it has taken them two difficult years, they have been successful in kickstarting the solar manufacturing process in India, at a scale which can make a difference.