Taxes slow India’s solar power rollout but boost manufacture

In May last year Fortum India, a subsidiary of a Finnish solar developer, won the bid for a solar power project in the state of Gujarat. The project was due to be completed three months ago and would have generated enough electricity for 200,000 homes.

But like many other solar power projects in the country, it’s been delayed as Fortum India struggles to source and pay for necessary components.

“For the last six months, we have not been able to finish developing any new projects,” said Manoj Gupta, who oversees Fortum India’s solar projects in India.

Gupta said solar panels and cells have become obstructively expensive because of protective taxes the Indian federal government implemented in April last year. The basic customs duty imposes a levy of 40% on imported solar modules and 25% on solar cells.

The government says it wants to encourage the domestic manufacture of components required to produce solar power and reduce the country’s reliance on imports.

But solar developers say homegrown producers, while rapidly growing and being pushed along by policy initiatives, are still too fledgling to meet demand. Current cell and module manufacturing capacity in India is around 44 gigawatts per year, just a fraction of what’s needed to meet India’s renewable aims.

In 2022, India had a target to install 100 gigawatts of solar energy as part of goal to add 175 gigawatts of clean electricity to its grid. But only 63 gigawatts of solar power were ultimately installed last year, according to Indian federal government data. India missed its 2022 renewable energy target by just nine gigawatts.

“Without these duties we would have easily achieved our targets for larger solar projects, at least,” said Jyoti Gulia of the renewable energy research and advisory firm JMK Research.

Most solar developers in India and around the world rely on China, with the nation producing more than 80% of the world’s solar components, according to the International Energy Agency. Many countries have tried to encourage domestic production to limit dependence on the country. The United States’ recent climate law, for example, also incentivizes homemade renewable energy manufacturing.

“China controls the market and we saw during both the pandemic and the geopolitical conflict between our countries that they just stopped the supply chain completely,” said Chiranjeev Saluja from the Indian solar manufacturer Premier Energies. “I think the government wants to develop the whole solar ecosystem, that is the intent behind such policies.”

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