Solar energy was proclaimed to be the next big thing for India.
Between 2014-2019, India’s solar power generation capacity went from 2000 MW to 28000 MW.
India even met its power generation targets four years in advance.
But, in July 2018 the party came to a sudden halt.
90% of solar modules installed in India were imported from China. The govt seeking to protect domestic manufacturers of solar modules, imposed a 25% safeguard duty on the cheap Chinese imports.
But does protectionism of this kind work?
This story has played out many times before; in the 1950’s, protecting vehicle manufacturers left consumers with only one option - the Ambassador. Only when the industry opened to foreign competition, there were options which offered better quality and price.
Since the 1950’s till today, the domestic steel industry enjoys subsidies, protection and preferential treatment. But, their financial standing has only worsened with time.
New policies are being made with the same flawed thinking expecting different results. Such policies have many drawbacks,
The government presumes that domestic production will take off. Solar panels are expensive to produce, as India does not have the technology or raw materials to make it at the same price as China. At higher prices adoption by Indian power producers falls.
The increase in prices is set to impact 4 GW worth of projects.
By making solar more expensive to adopt as compared to coal, the dependency on coal powered energy increases. Companies start relying on coal fired energy as its cheaper and society loses out as pollution increases.
Fresh subsidies amounting to Rs.4,500 cr have been announced for manufacturing sector. This might add 10,000 MW of capacity. But, there are strings attached to it; demand is being driven by government run institutions supplying power to consumers and business.
Forced to buy locally produced solar units the additional expenses will be transferred to the end consumer.
The domestic manufacturer doesn’t have any incentive to remove inefficiencies and offer a reduction in price as the government has set the floor price for the imports.
This redistribution of money in the form of a subsidy, helps the big producers such as Adani and Reliance who are now rushing to enter this space and fails to protect small manufacturers.
The reason why Chinese made solar modules are cheaper as compared to Indian goods-
The manufacture of photovoltaics—electricity-generating solar cells and panels—in India “suffers from a range of competitive disadvantages… These include inferior terms of debt capital, higher electricity prices, lower-scale operations, lack of vertical integration, outdated technology, and lack of demand visibility,”
The government should try and solve for these core issues instead of increasing duties and disrupting a booming market.
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