The ‘import restrictions’ on solar PV cells | Explained

Context:

The Finance Minister proposed the ₹19,500 crore PLI scheme in the Union Budget of 2022-23. 

• This was to scale domestic manufacturing of the entire solar supply chain — from polysilicon to solar modules.
• The government also introduced a steep 40% customs duty on PV modules and 25% on PV cells.

Does India rely on Solar PV imports?

• China’s Dominance in Imports: China is the leading supplier of solar cells and modules to India, accounting for a significant portion of India’s imports. As of January 2023-24, China accounted for 53% of India’s solar cell imports and 63% of solar PV module imports.
• Manufacturing Capacity Disparity: China holds a dominant position in the manufacturing capacity for various components of solar panels, including polysilicon, wafers, cells, and modules. Rating agency ICRA estimates that China commands over 80% of the manufacturing capacity in these areas.

Government Initiatives:

• Notification of ALMM Order: The government initiated efforts to address import dependency in the solar sector by notifying the Approved List of Models and Manufacturers (ALMM) order in January 2019.
• Introduction of PLI Scheme: The Finance Ministry proposed the Production Linked Incentive (PLI) scheme worth ₹19,500 crore in the Union Budget of 2022-23. This scheme was designed to incentivize domestic manufacturing across the entire solar supply chain, ranging from polysilicon to solar modules.
• Imposition of Customs Duties on PV Modules and Cells: To further incentivize domestic manufacturing and curb imports, the government introduced steep customs duties on photovoltaic (PV) modules and cells. Initially, a 40% customs duty was imposed on PV modules, and a 25% duty was imposed on PV cells.

Why is China a leading exporter?

• Cost-Competitive Manufacturing: China is recognized as the most cost-competitive location for manufacturing all components of the solar PV supply chain.
• Low Cost of Power: The lower cost of power supplied to the solar PV industry significantly contributes to China’s competitiveness.
• Growing Domestic Demand: The significant and rapidly growing domestic demand for solar PV products in China has played a crucial role in driving economies of scale.
• Economies of Scale: China’s large-scale production capacity allows manufacturers to benefit from economies of scale.
• Continuous Innovation: Chinese government support and the competitive market environment have fostered continuous innovation throughout the solar PV supply chain.

Future scope for Solar Energy in India:

• Ambitious Targets:  The target of achieving 500 GW of installed capacity from non-fossil fuels by 2030 underscores the significant role solar energy will play in India’s energy mix.
• Fastest Growth Rate in Electricity Demand: India accounts for the fastest rate of growth in electricity demand among major economies, according to the International Energy Agency (IEA).
• Abundant Solar Potential: India possesses abundant solar resources, with an estimated solar power potential of 748.99 GW.

Conclusion: The ALMM list, PLI scheme, and customs duties aim to boost domestic solar manufacturing in India to counter China’s dominance. With ambitious targets, fast-growing electricity demand, and abundant solar potential, solar energy holds significant promise for India’s energy transition.

Mains question for practice 

Q Discuss the initiatives undertaken by the Indian government to promote domestic manufacturing in the solar sector, particularly in light of China’s dominance.