The Chinese ability to disrupt global competition is a well-known story, albeit an unfinished one. Its technology and cost innovations have led to high-tech goods being produced at costs that have driven many established companies out of business and several others to shift their plants to China. And, every now and then, a new chapter is added.
A recent one is the field of solar energy. SolarWorld AG, Germany’s largest solar cell module maker, is shutting down several production lines in Germany and California to survive the Chinese onslaught. “These guys (Chinese manufacturers) get money practically for free (from the State),” SolarWorld’s CEO Frank Asbeck lamented as he embarked on the surgery.
The quest to dominate this renewable energy form has strong foundations. China has emerged as the largest producer of solar photovoltaic cells that convert sunlight to electrical energy. The China effect is there to be felt: Prices have dropped 40% in the last one year. But it has to contend with formidable defence: A few countries have already raised the moat. India, Canada and recently, Italy, have policies that favour domestic manufacturers. In India, for instance, you can sell solar power only if you use domestically produced solar modules. The protection measure has motivated several Indian companies to plan for manufacturing units.
So, isn’t the Indian consumer being denied cheaper electricity? For most part, the answer is a resounding “yes”. After all, to stay competitive, many power sector firms prefer Chinese equipment for their projects. But there is a counterpoint that cannot be ignored: it is essential to keep competitors from overseas at bay to seed and develop domestic manufacturing capacities. And, in time, this stimulus would provoke enough competition to bring down prices, be it in the sphere of finance or technology. There are two strong factors in favour of this argument: One, the unmet demand for electricity in this country is huge and this creates volumes for entrepreneurs to take risks.
Secondly, at the current pace of advancement in technology, solar tariffs, which are close to three times that of conventional coal-fired electricity, are likely to soften and reach the latter’s levels in around a decade. This offers hope to reduce dependence on imported fuels, be it coal or oil, which are on the rise: A good part of the country is blessed with sunshine. The real challenge then is for the government to taper off the sops offered to solar manufacturers, lest they degenerate to rent seekers.
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