India needs to innovate to beat Chinese competition in solar panels
Jan 17 2013, 2122
The clarion call by India’s fledgling solar crystalline panels and modules manufacturers to impose anti-dumping duty on imports of cheap Chinese solar power modules has reopened the old debate on whether anti-dumping duties serve societal interests or the interests of a few interested parties, at the cost of consumers. Solar module manufacturers claim that Chinese firms unable to service their high debt loads are dumping panels in the international markets well below the cost of raw material inputs that go into making each cell. Tata Power Solar claims that against a cash cost of 72 cents per watt, Chinese firms are selling modules at 60 cents a watt, making it a no-brainer for the company to buy imported solar panels even for its own projects. Indeed, cheap modules flooding global markets have helped green solar power developers in India to progressively lower tariff bids in the national solar mission projects. As a result, experts now forecast that power from renewable, green sources will cost around the same as that from less environmentally friendly, fossil fuel based sources, by year 2018. Cheaper electricity generating equipment have also helped loss-making electricity utilities in India fulfil their obligations of purchasing electricity generated from renewable sources at much lower cost than would have otherwise been possible. For state-owned electricity distribution companies that often sell power below cost price, renewable power is an expensive indulgence. They and several solar power generating companies would be hurt by imposition of anti-dumping duties on cheap solar panel imports. The duties would hurt consumers by forcing them to pay higher electricity prices everyday over the life of long tail projects. Manufacturers of solar panels who are either in losses or are being forced into restructuring their debts argue that taxpayers, through banks, would anyway end up paying for Chinese imports, as lenders are forced to partly waive off the principal and/or interest to make these units viable. But rather than choosing between the two interested groups, we need to go back to the origins of anti-dumping duty. In economics, such a duty is imposed either to protect infant industry for a short term or to protect domestic manufacturers from predatory pricing. In India’s case, both arguments would apply. Allowing industry here to die would export jobs to China, argue domestic solar module manufacturers. But consumer advocates point out that the industry being capital intensive is not such a big employer; admittedly though, quality jobs would be lost, and that has to be considered. More importantly, one has to balance between higher short-term costs for developers and consumers, and longer-term competitive markets. Thanks to Chinese dumping, a number of US firms have already shut shop. If no duties are imposed, expect several Indian firms to follow suit. Over the medium-to-long term, as alternative suppliers shut, the Chinese would end up operating an oligopoly dictating global prices in the same way that country now controls global prices of rare earths. This will ultimately end up harming consumer interests. More importantly, the argument for anti-dumping duty is not to protect profits of domestic producers, but to protect producers from unfair competition. In any case, high technology industry is seen as a high-risk sector. If government help to protect against unfair business practices cannot be relied upon, attracting capital, whether by way of debt or equity, would become difficult. Profits are crucial if we are to attract investment in innovation. India, with abundant sunlight and is ideally placed to attract investment in the sector. But the country has special needs due to its limited landmass, which will require someone to fund investment in customisation. Investing in next generation solar panels technologies too presupposes sufficient profits. In the absence of a moneymaking proposition, capital will head for the exit door, and with it, will head India’s hopes of low carbon future.