Home/ Politics / Policy/  India’s solar push drafts Army, PSUs for WTO compliance

New Delhi: India has raised the stakes in an ongoing trade battle with the US at the World Trade Organization (WTO) by rolling out an ambitious campaign to promote solar energy through the Indian Army and central public sector units (CPSUs)—providing them with grants on the condition that they source equipment from domestic manufacturers.

Even Indian Railways may be enlisted in the campaign at a future date.

According to the plan, reviewed by Mint, the government will provide financial support of up to 1 crore per megawatt (MW) to the implementing agency for setting up large solar capacities by placing orders with domestic manufacturers. While the government has termed the scheme “WTO-compliant", it comes in the backdrop of the Geneva-based global body setting up a dispute settlement panel to hear a complaint by the US against India’s domestic content requirements under the country’s solar power programme.

Piyush Goyal, India’s minister in charge of power, coal, and new and renewable energy, told Parliament on 6 August that to promote domestic solar manufacturers, the defence sector and government companies would set up solar projects totalling 1,000MW each, with the tender conditions stating that only Indian firms could participate in the tender.

Goyal, who spoke amid a controversy over India’s stand on food security at WTO, went on to add that the solar scheme was “WTO-compliant".

To start with, the government plans to provide viability gap funding (VGF) of 1,000 crore for setting up grid-connected solar projects of 1,000MW capacity by the Indian Army, which would provide electricity to one of the largest consumers in the country at a tariff of 5.50 per unit.

Also, the government plans to give VGF—financial grants offered to projects that are important but may not be immediately viable financially—to CPSUs such as NTPC Ltd and NHPC Ltd for setting up another 1,000MW capacity.

The cabinet will shortly take up the proposals for consideration. This is in addition to state-owned NTPC’s tender for setting up a 1,000MW capacity by using solar cells and modules made in India.

“Meetings have already been held for VGF to CPSUs for setting up solar projects," said a senior government official, requesting anonymity.

According to government documents reviewed by Mint, “It is proposed to provide a viability gap funding through Solar Energy Corporation of India (SECI) at a fixed rate of 1 crore per MW for projects where domestically produced cells, modules and inverters have been used, and 50 lakh per MW would be provided in cases where domestically produced modules and inverters have been used."

It requires an investment of around 8 crore per MW for setting up solar photovoltaic power projects. Of India’s installed power generation capacity of 250,257MW, only around 13%, or 31,692.14MW, is fuelled by renewable energy sources such as wind and solar.

“There is a clause in WTO that domestic equipment can be used for security requirements as the defence establishment would not like foreign equipment. We are using this provision. Also, in WTO, there is a provision which states that government can do domestic procurement for its own requirement, so we came up with the idea of procurement by CPSUs. Both of these sourcing are WTO-compliant. This is the strategy behind this. We are also planning to bring the Indian Railways onboard," said a second government official, who too did not wish to be identified.

He admitted that there might be issues later but as far as India is concerned, these schemes are WTO-compliant.

“There are essentially three alternatives that have been considered for setting up large solar capacities in the country. They are bundling, VGF and generation-based incentives," added the first government official quoted above.

India launched the Jawaharlal Nehru National Solar Mission in 2010, which plans to add 20,000MW of grid-connected solar power to the country’s energy mix by 2022 in three phases.

In the first phase (up to 2012-13), 1,684MW of grid-connected solar power was added and sold through bundling with thermal power through NTPC Vidyut Vyapar Nigam Ltd to reduce the average per unit cost of solar power. In the second phase (2013-17), the plan is to add capacity through the VGF route.

However, the US complained about India’s domestic content requirements under its solar energy programme for solar cells and solar modules, and approached WTO against India’s policy.

India’s National Action Plan on Climate Change recommends that the country generate 10% of its power production from solar, wind, hydropower and other renewable sources by 2015, and 15% by 2020.

“With sound policy and implementation, solar and wind energy could reduce our import bills, and bring new economic activity at a scale that is not even thinkable. Job creation in this sector is much needed. Renewable energy has the capacity to boost economic activities in rural India, thus creating many more jobs than just job creation specific to the renewables sector," said Suresh Prabhu, former Union power minister.

The Bharatiya Janata Party, which leads the new government, made energy security a part of its poll plank. India, which is dependent on imports to meet its energy needs, has an energy import bill of around $150 billion. This is expected to reach $300 billion by 2030, requiring a $3.6 trillion payout by 2030. The government’s energy security plans include harnessing renewable sources such as solar energy, biomass and wind power along with coal, gas, hydropower and nuclear power to usher in an “energy revolution" in the country.

This year’s Union budget unveiled a detailed roadmap for harnessing India’s renewable energy resources and provided excise duty exemptions for raw materials for solar and wind power projects.

Nikita Mehta contributed to this story.

Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Updated: 26 Aug 2014, 11:51 PM IST
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