It's been a difficult year for China in terms of trade. According to the recent data released by the country’s customs authority, exports and imports for China have seen a sharp fall consistently.

However, it's not just semiconductor devices and computers which have seen a drop in exports from China to countries like US over the past few months. Interestingly, exports of solar photovoltaic (PV) modules to India from China have seen a decline of over 70% on yearly basis, as per UK-based energy think tank Ember’s report.

Rising trade barriers

Unlike the Europe where solar PV module imports from China have significantly increased for the first half of 2023, Sam Hawkins, Data Lead at Ember attributes the fall in PV module exports to India due to the introduction of stringent tariff policies.

Additionally, the Union Government had also introduced measures like the Production-Linked Incentive Scheme and mandated approvals for solar manufacturers in India in a bid to boost domestic manufacturing.

“Basic customs duty of 25% on solar cells and 40% on solar modules, which is applicable on importing modules from China, is making the move an unviable option compared to the domestic players,” said Jyoti Gulia, Founder, JMK Research & Analytics.

Similarly, the norms on the Approved List of Module Manufacturers (ALMM) are currently put on hold, however, once in effect, it can further vitiate imports of solar PV modules from China.

“From April 2024, only ALMM-listed modules have to be there across projects installed in India. So, again that time from China, it makes no sense (to import) because none of the Chinese players are part of that list as of now,” added Gulia.

China’s dominance in solar manufacturing

Elements like solar cells, which include unassembled components needed for making solar panels, form 10% of China’s solar exports in value. Despite a decreasing trade of solar PV modules from China, Ember’s report points out that India is the second largest importer of solar cells from China after Turkey.

“India is increasing its base on the module side. But to build those modules, they still have to get cells from China,” Gulia said.

Ember’s data further indicates that a major chunk of the world’s solar export demand is fulfilled by China. For the first half of 2023, China’s solar exports increased by 34% with 114 GW shipped globally in comparison to 85 GW for the same period last year.

Additionally, Europe which is increasingly transitioning away from fossil fuels for power generation, stood out to be the biggest importer of solar PV modules from China.

”China has a massive head start when it comes to manufacturing solar panels. Traditionally, China's exports have been around the apparel, and furniture industries but now, it's around solar, electric vehicle batteries etc. As a matter of state policy, there is this big push to kind of support manufacturing capabilities,” Gulia said.

Highlighting India’s heavy reliance on China in making solar panels, Gulia added, “We still have to import polysilicon wafers to support the current manufacturing. There is no other way. I think 97% of the polysilicon base is still in China, anyone who sets up facilities be it the US or Europe has to be dependent on China. So we still have to wait and watch and see how alternate strategies will play out.”

Diversifying solar supply chains

China’s share in solar module production has come to 70% for 2021-22, as per a report by the Institute for Energy Economics and Financial Analysis (IEEFA).

Today, it is widely accepted that China has a strong foothold in solar manufacturing but countries like the US are aiming to provide impetus to domestic players.

The US Inflation Reduction Act, 2022 is the latest effort in not only lowering emissions but also incentivising solar panel manufacturing via tax credits.

Similarly, according to IEEFA’s data, India’s solar exports are seeing a surge in demand with growth of 5x for FY2023 against FY2022. India’s solar industry players also anticipate a greater impetus to domestic manufacturing and categorise it as a need.

“Covid-19 has been a reality check for all of us and has exposed our dependency or rather vulnerability on our solar supply chain. It is time for us to become more self-reliant and bet on our domestic capabilities, not just for us, but also for the greater good of energy transition and ensuring we are more inclined towards our own energy security,” said Subrahmanyam Pulipaka, CEO, National Solar Energy Federation Of India.

While India’s solar exports are dominated by countries like the US, China’s solar supply chain has maintained its share of exports to Europe and is increasing trade to Africa with each year. Supply chain shocks from China remain concerning, and issues relating to skilled workforce are still unresolved.

“There is a lack of skilled manpower, a lot of manufacturers have to still rely on other technicians or experienced professionals from China only to set up their module lines or cell lines,” said Gulia.

Similarly, the production apparatus is another area of concern for India’s solar manufacturing ambitions. “We have huge plans for increasing our manufacturing capacity, but the technology and demand for equipment are an integral part of the requirements for us to scale up our manufacturing. We need emphasis and focus on that,” added Pulipaka.

First Published:Oct 21, 2023 2:20 PM IST