Visibility on returns, R&D must for green push

The Economic Times brought together top CEOs and a top policy maker to discuss whether India can become a manufacturing hub in renewable energy. Panellists felt India can achieve its goal if manufacturers have clear visibility on returns on investment and make enough money to invest in R&D. Edited excerpts:

Mr Gujjari, Do you think India can become self-reliant in the wind sector, and what policy and regulatory support does the sector need?

Phani Gujjari, head of operations, LM Wind Power India: The area where we’d like to improve further in terms of atmanirbhar is on raw materials. Supply chain is an area where we are still dependent a lot. We aren’t very diversified and a lot of imports are from certain countries. That’s an area we would like most help on. In terms of what can be done, one is productivity. I see productivity as a skill and productivity tools as two things. In productivity tools, I want to appreciate the government programme of the science engineering and research board. The way I look at it is our tier-one supplier, our tier two supplier, there is a big gap in the skill level of say the big firms and mid and small firms. The other area is that even if we get our suppliers localised, we still have a huge part of our raw material imported. So, I think tier two, tier three localization — a lot has to be done.
Visibility on returns, R&D must for green push

Unless manufacturers see a 5-10 year runway where they can complete at least one full cycle of investment… we won’t have a manufacturing plantRanjit Gupta, CEO, Azure Power

Mr Gupta, the vision which the government has for the solar sector, with the support of the PLI scheme — can we really do it?Ranjit Gupta, CEO Azure Power: Given the vision of the Prime Minister of being 450,000 MW of capacity of renewables… we’re looking at $2 billion investment in equity and $2-3 billion debt. When you start manufacturing it is going to be slightly more expensive than China. We have labour issues, logistics issues, tax issues, electricity cost issues, cost of capital issues, cost of equity issues. But once we have scale, many of these things will go away. And for scale, for at least for the next 4-5 years, we need a situation where manufacturers can see that investing $2 billion will get them returns. Unless and until manufacturers see a 5-10 year runway where they can complete at least one full cycle of investment where they invest, build capacity, sell in the market, generate a return and return money to the shareholders, unless that kind of clarity is available we can have a lot of expressions of interest, but we won’t have a manufacturing plant on the ground.
Visibility on returns, R&D must for green push

India’s got about 10 GW of solar module assembly but all those operators are importing everything from ChinaSujoy Ghosh Vice President, APAC and India region, First Solar

Mr. Ghosh, what is your take?

Sujoy Ghosh, vice President, APAC and India region, First Solar:

In the solar industry, 90% of the global supply chain is in China. They built it by having a feed-in tariff mechanism where revenue certainty was provided to the investors and across the value chain, which is why today you see, the largest EPC companies in the world are all from China. In India, the whole manufacturing of wind flourished in an era where wind had a feed in tariff. We’ve had a reverse bid mechanism being adopted for solar. Yes, it has driven the cost of energy down to the consumer, but there are several question marks on quality and reliability of the assets, and the ability to produce power over 25 years. If you scan the market, India’s got about 10 gigawatts of solar module assembly but all those operators are importing everything from China because unfortunately, they are not able to meet the cost position which is offered from imported alternatives.
Visibility on returns, R&D must for green push

We need to have a crystal clear manufacturing policy, which we don’t have right nowSaibaba Vutukuri CEO, Vikram Solar

Mr Vutukuri, what would you like to say. Can India become self reliant?Saibaba Vutukuri, CEO Vikram Solar: In the last 10 years, we’ve done exceedingly well. We’ve installed from practically zero to 35 GW and invested Rs 1.75-2 lakh crores. If we see what is the kind of subsidy given for building generation capacity, it’s about Rs 40,000-50,000 crore. China on the contrary has invested $4 billion or $5 billion and captured global markets. I’m happy the government started looking at it. The initiatives are very good, but absolutely insufficient. We need to address two three points. One is cost differential between China and India, which is close to about 30%. We talked about BCD in the last six, seven months. Unfortunately, we have not brought in BCD at all. Tariff and non-tariff barriers have to come in. We need to have a crystal clear manufacturing policy which we don’t have right now.
Visibility on returns, R&D must for green push

We will continue with our efforts to protect and nurture the Indian industry, that is the major mandateGuruprasad Mohapatra, Secretary, DPIIT, GOI

Mr Mohapatra, would you like to respond to these issues?

Guruprasad Mohapatra, Secretary, DPIIT:

We can provide incentives such as PLI schemes. Various states also have their own schemes. Then, we can provide tariff and non-tariff barriers. In 24 sectors that our ministry is spearheading in coordination with other ministries, if there is no PLI or any other direct incentive, definitely protection measures need to be undertaken to protect them from unfair competition and trade practices. Those measures need to be consistent with obligations to the WTO. But basic customs duty cannot continue infinitely. But we need to protect the Indian industry.

Mr Ghosh, solar also faces the problem of quick change in technology. What kind of investments are we looking at into the R&D sector?

Sujoy Ghosh: In the manufacturing of solar photovoltaics, companies who are completely integrated across the value chain— they do everything, from semiconductors to the finished modules — have a natural advantage over companies only doing backend or part of the overall value chain. Unfortunately, most of the industry in India is doing model assembly, which is 25-30% of the overall value chain. From R&D standpoint, there are two aspects: how do you commercialise new technology to a full-scale production, where you’re producing millions of panels? The other part is, how do you upgrade your production facilities to keep pace? All of this comes back to, what is your essential business model? Are we generating enough money to keep cycling back into investments into R&D?
Visibility on returns, R&D must for green pushMr Vutukuri, what would you say on that?

Saibaba Vutukuri: In terms of technology, it is incremental in nature; there’s no transformational technology which will put off the previous manufacturing base into zero. In terms of R&D investment, if the private sector has to put in money, they have to make money. We have already achieved tariffs of Rs. 2 to 2.40 per unit. Why are we auctioning and reverse bidding?

Mr Gupta, in terms of R&D, where do you see the domestic industry?

Ranjit Gupta: If we can get to the size and scale that we want, R&D will follow. Technology is available off the shelf, and it’s not as if the technology is available only to the Chinese. At this point, where the solar tariffs are, it is easier to pass on the incremental tariff due to local manufacturing to consumers.
Visibility on returns, R&D must for green push

Even if we get our suppliers localised, we still have to import a huge part of our raw materialPhani Gujjari, Head of Operations, LM Wind Power India (GE Group company)

Phani, you spoke about entire supply chains needing to move in. What is the way forward?

Phani Gujjari:

There should be enough money in the entire value chain. Second is supply chain. I’m in the blade business, so I can see that supply chain is critical. Manufacturing is a lot more manual in nature. India is most favoured for manufacturing of wind blades. From that point of view, my industry in particular, it is the supply chain. We want to make it domestic and diversify the tier 2 supply chain.

Do we need to relook at the auction mechanism?

Guruprasad Mohapatra: When I was in the state power department, solar was Rs 15 per unit and it has now come down to around Rs 2.60. The government can buy only through the bidding process. Since I am in the government, I cannot say that the government is using the wrong methodology. If you can bring down the cost of production, it’s an overall mandate of the government by reducing the cost of power, land, credit, making easy availability of finance, compliance burden reduction. We will continue with our efforts to protect and nurture the Indian industry, that is the major mandate.

Policy stability in states is a key issue. Can the centre do something about it?

Guruprasad Mohapatra: We are trying to enter into an MoU between the state and the central ministry and the government of India. To encourage investment in that state, the state must guarantee certain things. One is policy stability that if the state has announced a certain distribution system where they buy a certain percentage of renewables, then they must not change it for a certain number of years. We’ve drafted an MoU, sent it to states for consultation. Once it is done, we’ll sign such MoUs.These couple of unfortunate incidents that we referred to happened in one particular state. In a democracy when a regime changes, certain amount of this is expected.

Mr Gupta, what prompts the industry to bid aggressively? Is it a fault of the methodology?

Ranjit Gupta: I’m quite ambivalent. As far as the government is concerned, there is no other way than reverse bidding. We have to figure out as an industry why we bid so low. There’s no link between the low bid and how that impacts manufacturing. Even in the wind sector, if we had the option of buying turbines from outside of India, we would have done that and increased our profit margins. Instead of a Rs 2.20 tariff, if I’m given Rs 2.50 tariff today, I don’t think I’ll go out and buy Indian modules.

Mr Ghosh, do you agree that no matter what the tariffs are, it won’t really impact our imports?

Sujoy Ghosh: People are bidding aggressively because there is capital available, there is excess equity, and excess capacity in this industry. There is no direct correlation between tariffs and manufacturing. Unfortunately in India, the way the auctions happen, there is an element of speculation. At the end of the day, the manufacturing industry also has to be competitive. As a manufacturer, you cannot completely rely on barriers and promote inefficiency.

Does Indian industry have the appetite to take up this challenge thrown by the government?
Saibaba Vutukuri:
You need to have trust in the policy, that the tariff or non-tariff barriers are going to sustain for a long period. The subsidies are going to be available for 5 to 10 years, and the ecosystem is going to be built and available. You need to have all these things before anybody can come forward.

(Moderated by Deepshikha Sikarwar)

Mozaffar EtezadiFar

Founder at Energykade
Mozaffar owns degrees in electrical engineering as BSc and power management as MSc. He has worked in fields of energy and e-commerce. He believes that energy and IT can help each other to save more energy and our planet. So here is energykade...
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