Why SECI’s Manufacturing Tender Failed

India’s nodal solar agency SECI had come out with a tender to promote solar manufacturing in India. While India has become the second largest market for solar panels during 2018, the country’s manufacturing remains in ICU due to the massive cheap imports from China. Despite huge demand, India’s solar manufacturers remain perpetually in a distressed state as the Chinese panel producers keep cutting prices at a cutthroat pace.

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So despite over 100 companies setting up manufacturing facilities, there is hardly any solar manufacturer that is profitable. Despite the 25% safeguard duty that was imposed, manufacturers have mostly given up because the price difference remains huge between the massive Chinese giga-scale plants and the smaller older Indian plants.

To avoid the WTO rules on giving domestic preference to Indian made solar panels, SECI had linked 10 GW of solar capacity with 5 GW of manufacturing. For every 1 GW of solar manufacturing that could be set up, the bidder would get 2 GW of solar power plant installation rights. However, this plan did not make much sense right from the start, as manufacturers would typically not like to get into the business of solar power installation. Also just getting 2 GW of installation for 1 GW of manufacturing capacity also made little sense given that this 1 GW of manufacturing capacity would have to remain functional for at least 10 years, which means that a capacity of 1 GW in manufacturing should have been given rights of around 5 GW in order to make sense.

Another rule that made by SECI was to cap prices at INR 2.75/kWh which was reduced again. Since this was a tender why had SECI then put in a cap? Why not let the market forces determine the prices? Many of the manufactures would think the cap to be too low. So after repeatedly failing to generate interest SECI reduced the manufacturing linkage to 3 GW from 5 GW for 10 GW of capacity. This was aimed to increase the interest from large manufacturers. Even this did not go far enough as SECI received only 1 bid for its tender and that too from a solar developer (Azure), and not a solar manufacturer.

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SECI has gone about supporting manufacturing ass-backward as it does not make sense to link manufacturing with solar power installation. Also capping prices when SECI does not have a clue on what the costs of manufacturing are, does not make much sense. Designing wrong incentives with a badly developed tender was a recipe for failure which has turned out to be true.