Challenges to investment

India's energy transition presented an opportunity to strengthen the local economy in the renewable energy (RE) sector. Despite the nascent state of the renewable energy industry in the early 2000s, one of India’s national goals was to support domestic companies and enhance local manufacturing capacity. If policies helped to create new jobs, the government expected public support for renewable technologies to be increased. Moreover, India sought to spur new innovations and level the competition between domestic and international manufacturers who dominated the renewable energy industry, potentially catalyzing a cost-effective domestic supply chain in the long run.

Approach

In 2009, India launched the Jawaharlal Nehru National Solar Mission, or the National Solar Mission (NSM), which, among other goals, aimed to establish a domestic manufacturing industry for solar energy. The initiative sought to reach a 4-5 GW equivalent of installed annual manufacturing capacity by 2020. To achieve this goal, the government enacted local-content requirements (LCR) for select solar technologies, which would be phased in over time. During Phase I of the program (2010-12), the enforced LCRs only applied to crystalline silicon technologies. In Phase II (2013-17), project developers needed to procure locally made solar photovoltaic (PV) to participate in the domestic content requirement (DCR) auctions held under the NSM. Alternatively, developers could enter open auctions that did not have LCRs, or they could participate in both DCR and open auctions by submitting separate bids. In 2018, the Ministry of New and Renewable Energy (MNRE),

the nodal body for renewable energy in India, issued orders to implement “Make in India” rules for the public procurement of clean power in India. It required a 100% local content requirement for solar modules in grid-connected plants and 70% for off-grid/ decentralized solar projects for all projects tendered by the federal government, ministries and public sector undertakings.

Key Enabling Conditions

The NSM was accompanied by other solar initiatives and programs jointly creating a market for solar energy and its development. For instance, the following Make in India policy in 2018 aimed to continue the initial success by fostering the environment for domestic solar manufacturing.

Impact / Outcomes

During Phase I, India's manufacturing capacity for crystalline silicon modules grew by 135%, partly due to LCRs. Extending the LCRs to thin-film products in DCR auctions in Phase II, the construction of crystalline silicon module-making capacity accelerated further, increasing by 27% per year, compared to 9% annually in Phase I. However, solar panels procured under LCRs between 2014-17 were about 14% more expensive than imported PV modules, resulting in a cost increase of around 6% per kWh. This additional expense added between USD 69 million and USD 88 million per installed GW of solar PV under the LCRs. Still, the LCRs in this period helped to spur innovation, resulting in a significant rise in new patent applications from Indian entities. Between 2014 and 2018, India’s solar production capacity grew from 0.2 GW to 0.8 GW, while the installed solar power generation capacity expanded from 3.3 GW to 28.9 GW. LCRs have played a significant role in the 135% growth in the manufacturing capacity of crystalline silicon modules in phase 1. After the “Make in India” announcement, domestic manufacturers expressed significant confidence in ramping up their manufacturing capacities. As of 2022, India had an installed PV cell manufacturing capacity of 3 GW/year and a PV module capacity of 10 GW/year.

Additional Sources

• Bazilian, M., Cuming, V., & Kenyon, T. (2020). Local-content rules for renewables projects don't always work. Energy Strategy Reviews, 32, 100569, https://doi.org/10.1016/j.esr.2020.100569
• Hansen, U. E., Nygaard, I., Morris, M., & Robbins, G. (2019). Local content requirements in auction schemes for renewable energy: Enabler of local industrial development in developing countries? UNEP DTU Partnership Working Paper Series 2019 No. 2, https://backend.orbit.dtu.dk/ws/portalfiles/portal/193202331/Effects_Local_Contents_WEB.pdf
• Johnson, O. (2013). Exploring the effectiveness of local content requirements in promoting solar PV manufacturing in India (No. 11/2013). Discussion Paper, https://unctad.org/system/files/non-official-document/DITC_TED_13062013_Study_GDI.pdf
• Probst, B., Anatolitis, V., Kontoleon, A. et al. (2020). The short-term costs of local content requirements in the Indian solar auctions. Nat Energy 5, 842–850, https://doi.org/10.1038/s41560-020-0677-7
• https://www.pv-magazine-india.com/2019/02/07/government-prioritizes-indian-products-in-plan-for-12-gw-of-new-solar/
• https://www.pv-magazine-india.com/2020/08/21/manufacturers-want-50-basic-customs-duty-on-solar-imports/
• https://www.pv-magazine-india.com/2020/09/11/local-content-requirement-costs-for-large-scale-pv-in-india/