Crisil wakes up to the fact that Indian Solar Industry is Uncompetitive, after Half of the Industry is effectively Bankrupt

Solar Industry research is quite abysmal especially in India where research agencies and market analysts have very little clue of what’s going on in the global solar industry. They are not only unaware of the current state, they have absolutely no clue about the future. However the mainstream media which is equally clueless keeps churning out these useless research reports.

Crisil had recently come out saying that Indian solar projects would lose money at Rs 8/ kwh and the prices would rise in the coming days. Read my thoughts on solar myths and misinformation.

 Crisil which is a S&P subsidiary (of the AAA US sub-prime crisis fame) has come out with a report saying that 13-14c/Kwh costs for solar power is risky for companies to bid during solar auctions. Like others it is woefully short on details and analysis. The report fails to look at:

a) Chinese crystalline solar panel costs, going down by 20% in 2012. Note prices are down by almost 50% as compared to the last year

b) There exists a massive oversupply which will not end in 2012 itself despite growing demand

c) It is hard to find a sustained period in which solar panel prices have increased from previous levels, except for a quarter or two

d) Demand is getting destroyed in Europe facing a fiscal/monetary crisis which helps keep the prices down

e) Protectionist policies in US will force Chinese solar panel prices to keep to a low level

f) First Solar which is the leading thin film solar player has already got  costs at 11-12c/KwH. Chinese solar companies can build plants with even lower costs.

 Now Crisil has woken up to the fact that the Indian solar panel industry is not competitive in the global market after half of the industry is bankrupt (Moser Baer is in CDR and Lanco too is going that way). The other solar companies are running at 10-20% utilization (that too seems too high). Anybody with basic knowledge could have told you 2-3 years ago that the Indian solar industry did not have much of a chance given the massive scale, technology advantages enjoyed by foreign companies. With massive Chinese investment even the top solar leaders like First Solar have been losing money since the last 2-3 quarters. Crisil has now woken up and has come out saying that Indian solar companies are not competitive given their small scale and would require massive subsidies. Even the investment figure mentioned is wrong.

Read these pearls of wisdom from Crisil courtesy Hindu Business Line.

However, it will be difficult to reduce the cost of generating solar power if localisation is pursued in the current scheme of things. Domestic panel producers, with their sub-optimal scales of operation, are not as cost-competitive as their international peers, especially the Chinese. For instance, India’s single largest solar cell manufacturing capacity is about a-tenth of the average capacity (about 1.5 GW) of the typical large global manufacturer.

The local manufacturers, therefore, face challenges in offering panels at competitive prices. Notably, a decline in India’s solar power tariff was possible in 2010 and 2011 largely on account of reduced prices of international solar panels. In contrast, the increasing restrictions on the use of imported solar panels will slacken the pace of future decline in solar power tariffs.

Therefore, the objectives of reducing the cost of solar power and strengthening local panel production will gain a fillip if the domestic players scale up their operations. Interactions with domestic manufacturers indicate that the main hurdles to capacity expansions are the substantial investments required, and the absence of commensurate demand, post-expansion.

Subsidy support

Typically, a 1 GW facility with module and cell manufacturing capability requires an investment of about Rs 4,000 crore. Schemes providing subsidy for investments in capacity will help domestic panel producers scale up operations and improve their cost competitiveness, and aid in the mission’s localization objectives.