Solar Manufacturers Seek Clarity on the Production-Linked Incentive Program

The industry believes Production Linked Incentive can positively impact domestic manufacturing

The Indian government has been trying to boost the domestic manufacturing segment and make it globally competitive. In one such move, in November 2020, the government announced a production-linked incentive (PLI) of ₹1.45 trillion (~$19.61 billion) for ten key sectors to help India attract investments in key manufacturing areas and develop cutting-edge technology.

Under the PLI program, the government has allocated ₹796.42 billion (~$10.75 billion) to manufacture high-efficiency solar modules, advanced chemistry cell batteries, and automobiles and auto components for the next five years.

The PLI is part of the ‘Aatmanirbhar Bharat’ program to make India self-reliant and become an important player in the global supply chain, especially in sectors heavily dependent on Chinese imports. The solar sector is one of them.

The program will extend an incentive of 4-6% on the incremental sale of goods manufactured in India and covered under target segments to eligible companies for five years.

The solar industry has welcomed the PLI program and believes the initiative can change the face of domestic manufacturing. However, it has sought clarity on certain issues relating to the criteria for utilizing the incentives, among others.

Bharat Bhut, co-founder, and Director of Goldi Solar, said, “India currently has 16 GW of annual solar module manufacturing capacity, which is much lower than the 25 GW annual demand that is anticipated in the coming years. The PLI initiative can bring about a massive change in domestic manufacturing – specifically in the solar industry — technology up-gradation and scalability. The imported raw materials to manufacture solar cells and panels are very expensive. The program will help local suppliers, strengthen the auxiliary industry, and make the whole ecosystem cost-competitive.”

“We have shared our views with the government and requested clarification on the PLI program, specifically on how the money will be allotted and whether the incentive will be production-based or efficiency-based. The government can either reimburse a nominal amount on a per-watt basis or help us pay the interest on the term loans taken for the manufacturing equipment,” he said.

The consensus among stakeholders is that while the PLI program is a step in the right direction, but more needs to be done to make India a manufacturing hub. They also emphasize that speed is the essence when rolling out incentives.

Some manufacturers feel that the allocations for the solar manufacturing sector are not enough.

Avinash Hiranandani, Global CEO and MD of RenewSys said, “The funds approved for the solar industry in the PLI program are relatively small. Solar PV module and cell manufacturing need more investments. Solar cells especially need more impetus because they have a significant role to play in the next phase of solar manufacturing expansion in India. A larger cell manufacturing capacity needs to be established to match the need while setting up facilities for more stages of the solar manufacturing value chain.”

“The PLI program will be more successful if more players benefit from it. Since exports from the Indian solar module manufacturing industry are down, an export benefit program to the tune of 8% is necessary,” he said.

Industry representatives Mercom spoke with made specific proposals on what the government should be doing to take domestic manufacturing to the next level.

Another manufacturer in the process of setting up a module production facility said that the government is looking at providing incentives to only those companies intending to manufacture 1 GW each of high-efficiency solar module and cell manufacturing capacity. This he said would require an investment of about ₹15 billion (~$209 million). Only large conglomerates with robust financial strength can qualify.

That said, a few manufacturers have gone ahead with the expansion plans and new facilities, hoping to receive support from the PLI program when it is implemented. If they wait for the program to take effect, these companies say they might lose out on the opportunities. It is a choice between policy risk or market risk.

Saibaba Vutukuri, CEO of Vikram Solar, said, “The government’s resolve to meet Paris Agreement commitments is reflected in various positive policy actions, with the most recent being the PLI program for solar modules. The COVID-19 pandemic is a huge opportunity for India to shape an inclusive and sustainable economy.”

For the PLI initiative to meet its objectives, the government has to give stakeholders clarity on the program’s specifics and how it will work on the ground. It remains to be seen whether the PLI program is indeed the answer to all the ailments plaguing the solar manufacturing sector.

But like most government programs, the announcement comes first, and the details can take a long time to trickle in.