Mixed Reactions to India's Solar Domestic Content Requirement

As the first batch of solar projects approach their one-year commissioning milestone for Phase I of India’s National Solar Mission (NSM), it has been reported that some projects may miss this crucial deadline and face penalties. With many projects behind schedule, those of us following the mission have been analyzing which elements of the mission’s guidelines may be helping or hampering its success.  In particular, the domestic content requirement (DCR), requiring certain solar projects to incorporate locally manufactured components, has raised the following overarching question: with the National Solar Mission’s broad array of objectives, is there inherent tension between the domestic content requirement and the solar mission’s other goals?

India’s National Solar Mission promotes several ambitious objectives through its incentives and guidelines, with the overall goal of establishing India as a global leader of solar power. The mission’s end target is to install 20,000 megawatts (MW) of grid-connected solar power and 2,000 MW of off-grid solar power by 2022. It also aims to scale up solar capacity and incentivize a favorable manufacturing environment to reduce dependence on imports of critical raw materials and create local industry, investment and jobs. The NSM is an important part of the national government’s National Action Plan on Climate Change, which aims to mitigate India’s greenhouse gas emissions and reduce dependence on fossil fuels.

The domestic content requirement is turning out to be one of the hot button elements of the mission, and has garnered a wide spectrum of reactions varying from high praise to loathing.  The purpose of the DCR is to promote the mission’s goal of creating a solar manufacturing industry. The NSM’s domestic content requirements are as follows:

  • Phase I, Batch I guidelines requires solar photovoltaic (PV) projects using crystalline silicon (cSi) technology to use modules manufactured in India. 30% domestic content is also mandatory for solar thermal projects in Phase I.
  • Phase I, Batch II guidelines expands the scope of the DCR for solar PV projects incorporating cSi technology, requiring that both the cells and modules be manufactured in India. 

The guidelines provide an exemption from the local content requirement for cells and PV modules incorporating thin film technology. The DCR only requires that these components be manufactured within India, not by Indian companies per se.

Many solar industry players, particularly in India, have praised the NSM’s domestic content requirement as transparent and necessary. They believe that this opportunity for India to become a major player in the solar field depends on such strong support for local manufacturing. Otherwise, with many established foreign players currently dominating the field with cheap cells and modules, there will be little incentive to manufacture these solar components in India. Some fear that without a DCR, India will not be able to achieve the mission’s goal of creating a local solar market while reducing dependence on foreign imports. DCR supporters have also highlighted difficulties in securing financing, not the domestic content requirement, as the key impediment to projects’ progress.

In contrast, other groups, including foreign solar companies, criticize the local content requirement as resulting in projects that are unaffordable and unable to achieve scale. The DCR is viewed as driving up project costs by prohibiting access to cheap solar components and technology abroad, creating an uneconomical rate of return. They fear the lower economic viability of cSi PV projects under the solar mission may slow the rate of solar installations initially until the infrastructure for local manufacturing is established and competes with the mission’s goal of low cost solar power. A resulting inability to commission affordable solar projects in the short term may hamper NSM’s goal of 20,000 MW of installed solar power by 2022.

Another important dimension to the debate is whether the domestic content requirement is too narrowly focused on the manufacturing aspect of a robust solar market. The solar ecosystem is much broader than manufacturing cells and modules, and other industries up and down the solar value chain may actually produce more domestic jobs. In the U.S., for example, a National Solar Jobs Census 2011 Report by The Solar Foundation states that the job growth potential for installation and sales & distribution jobs far exceeds manufacturing job opportunities, which are increasingly automated. Some stakeholders have expressed doubts that the current local content requirement focused on cell and module manufacturing will be as effective to drive job creation in India.

It remains to be seen if the National Solar Mission’s competing goals can coexist without hampering each other’s success. As the completion deadline for Phase I’s Batch I projects approaches, the mission’s progress in commissioning solar projects while simultaneously growing the domestic solar manufacturing market should help shed some light on the effects of the domestic content requirement.

About the Authors

Meredith Connolly

Climate & Energy Attorney, International program

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