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3GW of Renewable Energy Project Installation in India Impacted by COVID-19

The Indian solar industry is facing disruptions in the procurement of raw material and components for solar installations. The industry is heavily reliant on China for its sourcing requirement and is expected to face challenges in procurement of module glasses and wafers required for the system.

Modules account for approximately 60% of a solar project’s cost and Chinese companies supply approximately 80% of solar cells and modules. Chinese vendors have informed Indian developers about delays in production, quality checks and component transportation due to the outbreak. China has imposed work restrictions in eight affected provinces, most of which are the hub of solar module manufacturers.

Canadian Solar, LONGi Group, Trina Solar, Q-CELLS and JA Solar have their facilities in Jiangsu province. Jinko Solar and JA Solar conduct their manufacturing operations in Zhejiang province. PV inverter companies such as SolarEdge and Enphase Energy had contract manufacturers in affected provinces of Guangdong and Anhui respectively.

As a result, Indian developers have started facing a shortfall of raw materials required for solar panels and cells and limited stocks. It is expected that Covid-19 is going to affect the installations in the first half of the year and will likely to start showing signs of recovery only by the end of the third quarter.

According to the Confederation of Indian Industry (CII), the sector is expected to see a rise in the component prices due to the decrease in production and constraints that the supply chain and logistics are facing in procuring it from China, which has stopped production due to the Covid-19 pandemic. The virus outbreak has also created other issues for the Indian solar industry as ship container companies stopped picking up load from China ports and transporting it to different countries, including India. 

CII has shown concerns for the completion of solar projects scheduled in the next two quarters and has decided to revisit import strategies for solar module sourcing. The confederation has encouraged Indian PV manufacturers to consider it as an opportunity for Make in India for the solar sector and build a strong and competitive domestic solar manufacturing industry.

Approximately 2.3GW of the solar plants planned to be commissioned from June to August are already affected as they were expecting to receive modules supplies by March. In the ongoing situation, it is expected to further impact the capacity and future bids. 

To overcome this, the All India Solar Industries Association has recommended the government to consider subsidising the cost differential and ramping up domestic manufacturer production. It has also suggested exempting solar module producers in SEZs from 25% safeguard duty on imports of cells and modules for domestic facilities apart from using coal cess as a support for the domestic industry. 

CII has also recommended removing the higher customs duties imposed on certain products that are primarily sourced from China but may need to be sourced from other countries now and the government may reconsider the recent imposition of higher duties.

In response to industry concerns, India’s finance ministry in February indicated that businesses with supply chains disrupted by the coronavirus in China could declare force majeure, using the ‘Act of God’ clause that frees them from contractual obligations due to unforeseeable events. Monetary penalties are imposed for a three-month delay in commissioning of a project, while projects delayed further also face downward revisions in tariffs.

Tariffs at which a company will sell the power to customers are quoted when the developer bids for a project and, at the current scenario of delayed procurement, the developers are expecting the government to extend the deadline without renegotiating the tariff.

Most solar companies involved with government energy projects now have the possibility to invoke cause if they were unable to meet deadlines. SB Energy, Aditya Birla Renewables and ReNew Power are some companies that plan to invoke the clause in case of delay. A deadline to meet schedule on approximately 2.3GW of solar projects worth over $2bn is at risk, starting as soon as July. In addition, with the prices of supplies from other sourcing nations such as Taiwan or Malaysia being 15-20% higher, it becomes riskier for developers to control price increases. Industries are looking for additional financial support to deal with working capital costs and interest payments due to the delay.

India’s clean energy sector aims to increase its renewable energy capacity to more than 175GW by 2022, of which 100GW is planned to be from solar energy. India is progressing slowly due to policy confusion and land acquisition issues. With the coronavirus now posing a new threat to India’s plans, it is expected that the disruptions due to Covid-19 would leave an impact for the next two to three quarters.

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