WHY CHINA IS AHEAD IN THE SOLAR GAME

It is very vital we understand the supply chain of solar PV module manufacturing, also known as panel.

  1. Silicon production from silicates (sand)
  2. Production of solar grade silicon ingots
  3. Solar Wafer Manufacturing
  4. PV Module Assembly

The capital expenditure CAPEX and technical know-how required to set up the above processes decreases as one moves down the list. So, for example, silicon production is more capital intensive than simply module assembly. Most of the Indian companies are involved in either only module assembly or both wafer manufacturing followed by module assembly. None of the Indian names is involved in silicon production, although few are trying to take strides towards it.

Therefore it is vital we understand the supply chain of solar PV module manufacturing, also known as panel.

  1. Silicon production from silicates(sand)
  2. Production of solar grade silicon ingots
  3. Solar Wafer Manufacturing
  4. PV Module Assembly

The capital expenditure (CAPEX) and technical know-how required to set up the above processes decreases as one moves down the list. So, for example, silicon production is more capital intensive than simply module assembly. Most of the Indian companies are involved in either only module assembly or both wafer manufacturing followed by module assembly. None of the Indian names is involved in silicon production, although few are making strides towards it.

There are four major reasons as to why China is ahead of India: China has the initial know-how advantage as it had a long history of manufacturing for US tech firms such as Apple, Intel and is also the world supplier of lithium, lithium batteries, neodymium and ultra-efficient electric motors and generators. Secondly in terms of having Core competency not many know that silicon module the six largest Chinese manufacturers had expertise in semiconductors, before they moved in manufacturing of solar cells .It takes time for companies to learn and put in action new technologies.

So, when the solar industry in China began to take shape, Chinese companies had already the know-how. To give a perspective, the learning curve lasts from medium-term to long-term about five to ten years. In comparison, Indian companies have had no learning curve in semiconductors when the solar industry in India began to thrive from 2011. Third factor is the governmental policy support. Besides operational efficiency, another thing that is responsible for cost-effectiveness of Chinese modules is support from Government. The Chinese government is famous for its subsidizing programs concerning land acquisition, cheaper raw material, cheaper labor, export incentives, among others.

In contrast, Indian policy support costs are higher than those of Chinese. The cost of debt in India is highest in Asia-Pacific region. While cost of debt in China is about 5%, it is about 11% in India. Thus, debt is costlier in India, something that means higher interest expenses. Therefore, equity holders will have less cash flows and, thus, less equity IRR. This means that an investment in solar cell manufacturing facility in India will not be as attractive as in China

India does have domestic manufacturing industry of solar cell and assembly of Solar Pv modules. But most of the domestic Solar Modules manufactured in India are importing the solar wafer/cells not only from china .They import largely from Taiwan, Japan, Germany, South Korea, and USA on basis of type of Solar Cells. Largely they prefer to import from China, Malaysia and Taiwan because these markets have vertically integrated supply chain players manufacturing right from silicon to module and also Chinese government offer generous subsidies to these players. It gives them price advantage over Indian domestic module manufacturers. Hence approximately 75% modules are imported from China, 10% from Malaysia and Taiwan. Only 15% solar modules are Indian.

I feel time has come for Indian players and the government to take these factors seriously and try move ahead in the solar game.

SANJITH S. SHETTY

 

 

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