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Mercom Capital Group is a clean energy communications and consulting firm with offices in the United States and India. Mercom consults its clients on market entry, strategy, policy, due-diligence and joint ventures.
Raj Prabhu, CEO and Co-Founder of Mercom Capital Group, in response to queries raised by Raja Iyer, Research Analyst at FirstInfocentre, said domestic manufacturers of solar power equipments need to step up the quality, become cost competitive and brand themselves to become bankable.
"There needs to be capacity rationalization and Indian manufacturers simply cannot keep building manufacturing capacity without demand and hope for government intervention with policies like domestic content requirement to bail them out".
Following is the excerpts of his response...
The Jawaharlal Nehru National Solar Mission (JNNSM) was introduced to promote domestic manufacturing in solar energy sector and certain domestic content requirements were made mandatory in various schemes of JNNSM Phase-I. How far do you think this scheme would promote domestic manufacturing for solar power sector?
The primary motivation behind JNNSM's introduction was not to spur domestic manufacturing, rather it was to promote renewable energy and bridge the ever-increasing gap between demand and supply. Historically, India has always struggled to meet its power generation goals through conventional forms of energy. India's push for solar, wind and other renewable energy sources is part of an "all of the above" strategy that is needed to tackle such a massive power problem. India needs power, plain and simple. The goal of JNNSM is to meet that need. Bolstering domestic manufacturing is a positive bi-product.
What is your assessment of the scope of the domestic market for different technologies of solar energy like solar PV (photovoltaic), solar thermal?
There is enormous potential for solar photovoltaic in India. The demand is there, the conditions are right and we're starting to see the will of the people as well. While concentrated solar power (CSP) offers great potential, it also faces serious short comings, such as excessive water consumption. Water availability is already scarce in most parts of India and is only expected to get worse. CSP has not been able to catch up to the fast declining cost of PV making it less attractive for investors and power purchasers.
What are the challenges faced by solar components and systems manufacturers in the country. What is your suggestion to address them?
Globally, including India, chronic oversupply of PV has plagued solar industry for the past two years. Prices have dropped by almost 65 percent, and most manufacturers who haven't been cost competitive have gone out of business. Indian manufacturers, along with the burden of competing with global competition on cost, had never really established a name brand. With an abundance of tier one solar panels available, developers and financial institutions view no-name Indian panel manufacturers as riskier investment proposition. Indian manufacturers need to step up the quality, become cost competitive and brand themselves to become bankable. There needs to be capacity rationalization and Indian manufacturers simply cannot keep building manufacturing capacity without demand and hope for government intervention with policies like domestic content requirement to bail them out.
China is emerging as a leading solar component and products manufacturing hub. What are the lessons India must learn from the country?
Chinese manufacturers are already leaders specializing in the solar sector for years. Most Tier 1 manufacturers are Chinese and have invested heavily in manufacturing, expanded capacity during boom years and have managed to bring down costs through economies of scale, while continually increasing efficiencies. Comparatively, Indian manufacturers mostly small, have been around for last 10 years as Original Equipment Manufacturers (OEM) exporting to European countries and have lacked branding and scale. Indian manufacturers in order to be successful need to specialize and invest to scale. Most Indian manufacturers tend to be a unit of large industrial house with small manufacturing lines lacking both scale and focus.
What is your assessment of the current investment appetite of private equity and venture capitalists in the manufacturing segment of solar sector - both globally and domestically?
The current investment appetite among private equity and venture capitalists is very low. They consider manufacturing segment of the solar industry extremely risky because of the current chronic oversupply scenario. Only companies that offer unique technology supported by intellectual property (IP) and products that are ground breaking and commercially viable have hope of attracting investments.
Some municipal corporations are introducing solar streetlights, while some state governments like Gujarat are promoting rooftop solar energy projects. Do you think these projects would increase opportunities for products and system manufacturers?
Yes, this will certainly create demand. It is also important to note that there are no domestic content requirement policies in this segment. So, even though this is a huge opportunity for domestic manufacturers, they still need to compete on cost and quality to capture market share.
What is the structure of the manufacturing segment in the solar industry in the country - is it oligopolistic, monopolistic. Is there scope for consolidation?
The solar sector in India is still in its infancy and comparatively very small to be branded as anything right now.
Over the last two years, bids offered by solar power developers for projects under JNNSM have declined. Do you think India is reaching a stage of attaining cost parity between solar power projects and thermal power projects?
Yes, we are getting closer to attaining cost parity. In India, retail power prices are heavily subsidized, while price of solar is coming down consistently. We could be achieving grid parity much faster if conventional power was not so highly subsidized.
Union renewable energy ministry aims to add 750 MW of solar photo voltaic capacity in 2013-14 by providing viability gap funding. How far do you think is the target achievable?
We will wait for concrete information on this before commenting on this.
According to you, what are the steps the government must take to increase the share of renewable power in the total power mix?
Indian governments both at the central and state level should continue to bring supportive policies. They have to also increase awareness about the benefits and usage of renewable energy in commercial, industrial, residential consumers both in urban and rural segment. There has to be aggressive scaling up of renewable energy capacities against thermal energy. Subsidies provided to coal do not reflect the real cost of retail power. The government needs to stop subsidizing coal to realize the full potential of renewable energy.
What is your assessment of the market for Renewable Energy Certificate (REC) in the country? What are the steps the government must take to promote volume in the market?
Unless Renewable Purchase Obligations (RPOs) are strictly enforced, the market for RECs will always struggle. There needs to be stricter enforcement rules to meet RPO targets to increase volumes of RECs and boost the renewable energy sector in general.