Is the Solar Mission being held hostage by a group of Adani-led solar companies?

A year into office, Prime Minister Narendra Modi set ambitious targets for India’s solar power sector. Ajit Solanki/AP
31 January, 2019

In 2010, Manmohan Singh, then the prime minister, launched the Jawaharlal Nehru National Solar Mission, or JNNSM, a central-government initiative that envisaged India as a global leader in the solar-energy sector. The mission aimed to create an enabling environment for the penetration of solar technology in the country, and set a target for India’s solar power—by 2022, the government said, India would have 20 gigawatts of installed solar capacity. In 2015, less than a year after he became the prime minister, Narendra Modi raised this goal by five times—to 100 gigawatts by 2022. Modi reiterated his commitment to solar power in 2016, when India ratified the Paris Agreement, an international convention to tackle global warming, under which India promised to cut down carbon emissions by 33–35 percent. The Modi government then initiated the International Solar Alliance, an association of 121 countries that aims to develop solar energy to cut down dependence on fossil fuels. “ISA will play a similar role in the future that Organization of the Petroleum Exporting Countries, which accounts for around 40 percent of global crude oil production, is playing today,” the prime minister said while inaugurating the first ISA assembly in October 2018.

Modi’s grandstanding aside, India’s leading role in international solar-power initiatives, as well as the JNNSM, are facing major setbacks due to recent policy changes. An August 2018 report by the global consultancy firm CRISIL noted that India was likely to miss its 2022 target by over a fifth, due to the impact of these policy changes.

In July 2018, the finance ministry approved a safeguard duty—an import duty levied to protect the domestic industry from losses due to cheap imports—on solar cells and modules, which are the main building blocks of a solar panel. Coupled with the weakening rupee, the new import duty has raised the cost of solar projects by around twenty percent, as per the CRISIL report. The duty was imposed at the behest of a group of five companies, led by Mundra Solar, the solar-power firm owned by the Adani Group. Further, despite repeated requests from the ministry of new and renewable energy, or MNRE, the finance ministry has refused to provide subsidies and incentives to domestic solar-panel producers. Put together, these decisions raise questions about the government’s commitment to becoming a solar superpower.

The JNNSM target set by the government is split into ground-mounted solar projects and rooftop solar panels, with installed capacities of 60 gigawatts and 40 gigawatts, respectively. Currently, India has achieved a total connected solar-power capacity of 24 gigawatts, against the 100-gigawatt target. Of this, around 9.3 gigawatts was added in 2017–18, but only 2.6 gigawatts was added in 2018–19. According to the MNRE, only 156 megawatts of rooftop solar panels were installed in 2018, against the target of 1 gigawatt for that year—the overall current capacity is a mere 6 percent of the 40-gigawatt aim. In May 2018, India’s solar-cell manufacturing capacity was 3 gigawatts, a bare 15 percent of the 20-gigawatt target.

The impact of recent policy decisions is already being felt as attempts to boost solar capacity through large-scale tenders have failed. Despite repeated revisions of terms and deadlines, tenders issued by the Solar Energy Corporation of India, or SECI—the central public-sector enterprise that implements the JNNSM—for 10 gigawatts in solar projects had no bidders.

The turmoil in the Indian solar-power industry can be partly attributed to the imposition of the safeguard duty on imported solar cells and modules. Till July 2018, over 85 percent of India’s solar cells and modules were imported from China and Malaysia. Solar cells form half of the components required to build a solar-power plant. According to an August 2017 report by the MNRE’s national solar mission division, as of May 2017, there were only 20 solar-cell manufacturers in India, with a total operational capacity of 1.66 gigawatts, and 117 solar-modules manufacturers, with a total installed capacity of 5.5 gigawatts. When the Adani Group’s Mundra Solar—the largest unit for manufacturing solar cells and modules in India—started operations in May 2017, it added another 1.2 gigawatts of installed capacity.

In December 2017, the Indian Solar Manufacturers Association, or ISMA—a representative association of 23 solar manufacturers—filed a petition with the directorate general of safeguards, or DGS. The DGS was a regulatory body under the finance ministry that conducted investigations into the imposition of safeguard duties across industries. In May 2018, the DGS was merged with the directorate general of anti-dumping and allied duties to form the directorate general of trade remedies, or DGTR, which was brought under the ambit of the commerce ministry. The ISMA filed the petition on behalf of five of its members—Mundra Solar, Jupiter Solar Power, Websol Energy Systems, Indosolar Limited and Helios Photovoltaic. The petition argued for an anti-dumping duty on imports based on claims that domestic companies were facing losses on account of cheap imports. It claimed that this safeguard duty would protect the domestic industry from “serious injury caused by increased imports.”

The DGS investigated the petition’s injury claims and released its preliminary findings on 5 January 2018, in which it recommended a heavy safeguard duty of 70 percent on solar cells imported from China and Malaysia. On 22 January, this report was stayed by the Madras high court in response to a petition filed by the solar-power developer Shapoorji Pallonji Infrastructure. After the DGS was incorporated into the DGTR, the investigation was relaunched. The DGTR released its report in July 2018, recommending a phased safeguard duty for a two-year period—25 percent in the first year, 20 percent for the next six months and 15 percent for the rest. On 2 August 2018, this report was briefly stayed by the Orissa high court, after three solar power companies—Hero Future Energies, ACME Solar and Vikram Solar—petitioned against the imposition of the new import duty. However, the report was reinstated by the Supreme Court in September 2018.

A host of Indian solar power developers and associations, spearheaded by the Solar Power Developers Association, or SPDA, argued against the import duty at a public hearing called by the DGTR on 26 June 2018. The SPDA challenged the ISMA’s claim that the solar industry suffered huge losses due to imports from China. The SPDA noted that the petitioner companies had claimed injury based on factors such as total production, capacity utilisation, domestic sales and employment of labour, but that these claims were unsubstantiated and the data provided to the DGTR to support their claims of injury was deliberately skewed. Out of the five petitioners, Indosolar reported a decrease in losses to the tune of Rs 83 crore in 2017; Websol, which expanded its operations, posted a profit of Rs 86 crore; Jupiter recorded a profit of Rs 40 crore; and Helios reported losses because of debt restructuring during the period under revenue—April 2016 to September 2017 . The most curious case is that of Mundra Solar, which claimed injury to its business barely five months into operations.

The SPDA also countered the ISMA’s argument that imports increased due to Chinese dumping. The Indian solar-power industry grew by around eighty percent in 2016–17. Contrary to the ISMA’s claims, the SPDA said this growth was spurred by demand created because of JNNSM and tenders issued by state governments and bodies like the SECI. “Decrease in market share of the applicant domestic producers is on account of significant gap between capacities of domestic industry engaged in the manufacture of the subject good and actual demand,” the SPDA argued.

As per the SPDA, the safeguard duty will escalate project costs, compelling distribution companies, or discoms, to hike power tariffs. The MNRE has already indicated that this hike will have to be borne by end consumers. Solar-power tariff in India has dropped by around eighty percent since 2010, and reached a record low at Rs 2.44 a unit in May 2017. An import duty of twelve to fifteen percent would push this tariff to Rs 4. The SPDA feared that discoms would refuse to purchase solar power above Rs 3 a unit, threatening existing power-purchase agreements of 9 gigawatts and ongoing projects worth almost twenty-eight thousand crore rupees. The DGTR rejected the SPDA’s arguments, and the finance ministry subsequently approved the safeguard duty on 30 July 2018.

Incidentally, the ISMA had approached the DGS with the same petition on import duty in 2012. Following a two-year-long investigation, the commerce ministry had proposed an anti-dumping duty ranging from eleven to eighty-one cents per watt on solar cells imported from the United States, China, Malaysia and Taiwan. The MNRE had opposed the duty, on the grounds that the Indian industry had not reached a stage where the duty could be imposed. Piyush Goyal, the power minister at the time, had also opposed it, saying that India’s domestic manufacturing capacity was insufficient to meet targets for power generation from green-energy sources. In July 2014, Nitin Gadkari, the minister of road transport and highways, wrote to Nirmala Sitharaman, who was then the junior minister for finance: “This duty would escalate cost of solar power by 100 per cent. Solar power projects with capacity of about 4,000 MW tendered recently would be stuck due to price escalation.” Subsequently, the finance ministry, then headed by Arun Jaitley, refused to implement the duty in 2014.

Between 2014 and July 2018, there has been no change in the circumstances that led to the rejection of the import duty. Moreover, the domestic industry has attained only 15 percent of the capacity required by the market. The only change appears to be that the Adani Group has set up India’s largest solar-manufacturing facility and joined the petitioners. Notably, R K Singh, the current minister of state with independent charge of power, has remained silent on the issue this time around, even as a concept note prepared by the MNRE in December 2017 strongly opposed the import duty.

Ironically, a month after the import duty was imposed, the ISMA approached the finance ministry—the five companies now wanted an exemption from the very same safeguard duty they had lobbied for. Three out of these five companies—Mundra Solar,Websol and Helios—are based in special economic zones, or SEZs, while Indosolar is an export-oriented unit, or EOU. SEZs and EOUs lie outside the domestic tariff area, or DTA—territory that falls under the customs regime—and are exempt from a host of Indian taxes and non-fiscal laws. To ensure a level playing field in the Indian market, the Special Economic Zones Act of 2005 mandates that if an SEZ unit sells its products in the DTA, then it will have to pay import duties, including safeguard duty.

The confusion seems to arise from the fact that the two reports on import duty—issued by the DGS and the DGTR—were contradictory in the case of safeguard duty for SEZ and EOU units. The DGS report proposed that these SEZ units be exempted from the safeguard duty, while the DGTR report excluded these units from the scope of domestic industry, and recommended the application of import duty. In the case of the DGTR report, the import duty would be applicable to around ninety percent of solar cells and modules manufactured in India, as solar units in the DTA cater to only 1.16 gigawatts of the annual demand of 10.57 gigawatts.

If the appeal by the SEZ and EOU units is accepted, the finance ministry will have to strike down Section 30 of the SEZ Act—which states that “any goods removed from a SEZ to the DTA shall be chargeable to duties of customs including anti dumping, countervailing and safeguard duties”—signalling a major change in trade policy. A lawyer representing some of the constituents of the SPDA, who requested not to be identified, told me: “The imposition of the safeguard duty would benefit only a few large companies, but would adversely affect the small- and medium-scale developers and consumers.”

Compounding this policy prevarication is the fact that the finance ministry has consistently rebuffed the MNRE’s solar initiatives. In December 2017, the MNRE released a concept note to bolster the domestic-manufacturing capacity of various components of solar-power production. In line with Make in India—a central government initiative to promote and expand the indigenous manufacturing sector—the note proposed an integrated policy to be implemented in phases, and included an argument for continued imports. The note recommended support to manufacturers of solar cells and modules to aid expansion, upgradation of existing facilities and establishment of new manufacturing facilities to enable the domestic sector to compete with international solar products. But when the MNRE drafted a scheme to provide solar-panel makers a capital subsidy of up to 30 percent, the finance ministry rejected it. The department of industrial policy and promotion had also supported the MNRE’s proposal.

In July 2018, the Modi government launched the Kisan Urja Suraksha Evam Utthaan Mahabhiyan—a scheme to provide solar-powered water pumps for farmers—with a promised budgetary support of Rs 48,000 crore over a period of 10 years. When the MNRE requested an initial funding of Rs 28,000 crore, the finance ministry said it could not allot such a huge sum for the scheme. The implementation of the 18-percent slab of the goods and services tax, or GST, was another blow to the solar industry. The MNRE had proposed a 5-percent GST on all components used in solar-power plants.

The government’s absolute lack of support to the domestic industry, along with the seemingly preferential treatment to the Adani-led lobby of companies, has led to a stalemate in the Indian solar power industry. And according to the SPDA, “under the garb of safeguard duty,” the Adani-led lobby was trying to further “their own objective of increasing their market share without fairly competing with international players.” Tim Buckley, the director of energy-finance studies at the US-based Institute for Energy Economics and Financial Analysis, told me, “The solar-module import duty is an own goal for India at a time when India’s solar mission had put it in the centre of the world stage as a world leader.”