Govt floats EoIs for 3 manufacturing zones for Power & RE sector.

The government recently invited bids for a pilot project to set up two brownfield and one greenfield manufacturing zones to meet its growing domestic demand of power and renewable energy (RE) equipment in the country as well as to build domestic production capacity.

These zones will play a critical role in meeting pledges made by India at the COP 26 summit last year, which includes 450 gigawatt (GW) RE capacity and increase share of RE to 50 per cent by 203

The scheme is for setting up three manufacturing zones for power and RE equipment in three States. One zone each will come up in a coastal State, a hill State and a land-locked State. The government has also drawn up a list of equipment that it wants manufactured in these zones.

The Ministry of New and Renewable Energy (MNRE) and Power Ministry (MoP) have jointly proposed a scheme for establishment of three zones, two brownfield zones already having developed land and greenfield zone in a coastal area with a total financial outlay of ₹1,000 crore.

The funding has been kept flexible for supporting common infrastructure facilities (CIF) and common testing facilities (CTF) with a ceiling of ₹400 crore in any zone. The scheme’s duration is five years from FY22 to FY26. State governments or SPV in partnership with the State can submit proposals for setting up a zone.

India’s total capacity for manufacturing solar modules, according to the Approved List of Models and Manufacturers (ALMM) on March 31, 2022, is about 11.5 GW. At present, there is no commercial scale fully integrated (polysilicon through ingots-wafers-cells and solar PV modules manufacturing unit) in India.

RE developers in India are dependent on imports of solar modules mainly from China, which accounts for more than 80 per cent of the inbound shipments. For instance, the total import of solar cells and panels during FY19 stood at $2.19 billion, of which China accounted for $1.70 billion.

Similarly in FY20, of the $1.70 billion worth of imports, China’s share stood at $1.30 billion. Likewise, in FY21, while the imports shrunk to $572 million, China still accounted for $500 million worth of imports. During April-January period in FY22, total imports stood at $3.45 billion, of which China’s share was $3.12 billion.

To discourage imports, the government introduced a 40 per cent basic customs duty (BCD) on solar modules as of April 2022 and 25 per cent on solar cells. However, owing to inadequate domestic capacity, reliance on expensive imports and price variation may affect the viability of current projects under execution.

Considering India’s pledges of 175 gigawatts (GW) RE power by 2022 and 450 GW by 2030, the overall financing requirement is quite an uphill task. For instance, the government requires an annual investment of Rs 1.5-2 lakh crore for its long-term commitments, against which the estimated investments in the last few years has been in the range of only Rs. 75,000 crore.

According to ICRA, the investment requirement for achieving the non-fossil capacity target of 500 GW by FY30 remains large at close to $300 billion. It also expects the investments towards transmission infrastructure and storage capabilities to be about $150-200 billion over the next 8.5 years, taking the overall investment requirement to $450-500 billion. The availability of adequate funding avenues at cost competitive rates remains critical to achieve these capacity targets.

HBL