Low incentive could dampen interest in PLI scheme for solar manufacturing

The Union Cabinet last month approved the MNRE proposal for ramping up domestic manufacturing of solar photovoltaic panels under the Centre's PLI scheme

The Rs 4,500-crore Performance Linked Incentive (PLI) scheme for solar manufacturing has not met industry expectations since domestic manufacturers could end up getting barely 3-5 per cent of the sale value of their solar cells and modules through this scheme. 

With the government claiming record clean energy capacity of 450 GW by 2030, the scheme aims to support end-to-end indigenous solar power capacity in the country. “Industry calculations indicate that in terms of capital expenditure, PLI would be in the range of 15-25 per cent. The incentive on the capex will come after five years. The incentive on sale is variable as no one knows how much they will sell. For foreign investors, the incentive is further reduced due to customs duty,” said a senior executive of a leading solar company.

The Union Cabinet last month approved the proposal of Ministry of New and Renewable Energy (MNRE) for ramping up domestic manufacturing of solar photovoltaic (PV) panels under the Centre's PLI scheme. The proposed scheme is aimed at creating an additional 10,000 MW capacity of integrated solar PV manufacturing plants in the country.

According to the guidelines issued by MNRE, the manufacturers will be selected through a transparent competitive bidding process and PLI will be disbursed for five years post the commissioning of the manufacturing plants, on sales of high efficiency solar PV modules.

DAM Capital in a recent note estimated that the capital required for 1GW of cell and module is expected to be Rs 1,500 crore per GW and the scheme could see 8-10 GW of solar cell and module manufacturing capacity addition in the country.

“Prima facie, based on the guidelines, we believe the scheme is highly beneficial to large players with experience. Note that Adani Enterprises and Tata Power have 1.1GW and 0.4GW of solar cell and module manufacturing capacity. We also expect Coal India and BHEL to participate in the auction among the listed entities,” said the note, adding further that domestic manufacturers would get additional support from basic customs duty on solar imports.

The Centre has announced the imposition of a 40 per cent basic customs duty (BCD) on imported solar cells and modules from April 2022 onwards in order to support domestic solar manufacturing. Nearly 85 per cent of Indian solar capacity is built on imported cells and modules, mainly sourced from China.

“BCD offers much better incentive to a foreign player to come and manufacture in India, rather than PLI. Under PLI, the incentive is very less compared to their capex. For large scale manufacturers, neither the PLI scheme is beneficial nor BCD. Established solar component makers are based SEZ and the Centre till yet has not offered any BCD exemption to them,” said a senior industry executive.

Leading players such as Adani Solar, Vikram Solar, and Waaree Energy are situated in ‘special economic zones’ (SEZs) and thereby come under the duty regime. SEZ manufacturing units are considered t par with foreign companies and hence customs duty is imposed on them too. According to industry data, of the 3,100 MW of cell manufacturing capacity in India, 2,000 MW is situated in SEZs. In module manufacturing, 3,800 MW out of the 9000 MW is located inside SEZs.

PLI as Percentage of Modules Cost and as Percentage of Capex
Type of Manufacturing	PLI as % of Module Cost	Estimated Capital Cost per GW (Rs Cr)	PLI as % of Capex
Cell + Module	around 3.5%	850	around 24.5%
Wafer + Cell + Module	around 4.6%	1400	around 20%
Polysilicon + Wafer +Cell + Module	around 5.75%	2200	around 16%
Note: Base PLI Rate= Rs 3.00/Watt (at Module Efficiency of more than 21.5% and upto 23%,and Temperature coefficient of (-0.4 to -0.3). Price of a Module has been taken as Rs 20/Watt-peak.
SOURCE: MNRE guidelines for PLI scheme, industry calculations