Lead PV. Module. Prasad. Dahapute. experience. 13 years of. PV modules. in India? to have PV 2014.

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1 India Has A Chance To Lead PV Module Manufacturing By 2020 Prasad Dahapute Prasad Dahapute is the Founder and Managing Director of Varhad Capital. He steers the team in sourcing and executing all types of transactions and operates two Small Growing Businesses (SGBs) in financial services sector with hands on experience of 3 years. He has more than 13 years of experience in financial sector and has served in various leadership roles. Why should we produce PV modules in India? These days, most of my time goes on reading the green energy material, as our next generation needs better and sustainable world. When I met promoters from PV module manufacturing company in Maharashtra; we, the Varhad Group, started thinking on future of manufacturing PV modules in India. What matters the most in this sector is access to local demand because world has 70% surplus PV module manufacturing capacity today. But to have PV module manufacturing, we also need good and functional supply chain (manufacturing support). Fortunately, it is not a real challenge in India because most of the raw material i.e. solar cells are imported in India. Thanks to Vikram and Waree PV module manufacturing, the required supply chain in this sector is already functional. Following diagram talk about PV module manufacturing facilities across the world as on December 2014.

2 Source: FISE As seen in the chart above, India hardly features in PV module manufacturing because only China, Taiwan and Japan feature from Asia. So achieving 100GW of solar installation target by is a big task for India, which looks feasible because of energetic Prime Minister of India, Mr NarendraModi. As on December 2014, according to German institute Fraunhofer ISE, the world had 183GW of installed solar capacity as shown in a chart below. Hence installing 100GW of capacity is equal to 54% of the global capacity (2014) in purist terms. #MakeinIndia PV modules would be very important to make 100GW target a reality. If we go through draft capital goods policy, it is safe to say, making PV modules in India is more of a compulsion than a choice. Source:FISE Does it make economicc sense to set up PV module capacity in India? We generally talk about #MakeinIndia because of policy or government targets. But here it is a classic case and answer is firm Yes. Today India doesn t have a plant of making poly-silicon or solar cells, nor anyone talking about setting up such a plant here. To be honest, India doesn t need such a plant today because of

3 sufficient global capacity. India will need poly-silicon plants by 2018 especially when India will install Mono-Silicon/ Multi-Silicon PV modules because of its suitability and higher efficiency. As shown in a picture below, more than 50% PV module manufacturing in the world is Multi-Silicon and 40% is Mono-Silicon PV modules. Thin-film is lesss than 10% in global production capacity. Source: FISE Today, there is a glut in PV module manufacturing and price of modules fall by 20% whenever production capacity doubles up. Today massive capacity addition is going on in US and China, while it is picking up in rest of world while Europe is saturating. Global PV module production capacity is around 47.5GW and it is expected to grow to 135GW by (3 times in 5 years). Greentech Media expects production overcapacity to fall to just 26% in Chinese players may not be adding much production in their own country as 3 major Chinese players viz. Triana Solar, Jinko Solar and JA Solar have announced 6.64GW capacity addition and all outside China. Hence pressure from PV modules prices may come down by That s why we should set up PV module manufacturing in India. There are few more benefits to produce in India: As per announcements, 32% all new capacities addition is coming up in India, thanks to Mr.NarendraModi s energy and prominence. India provides 10 year tax concession window and accelerated depreciation benefit, which is one of best incentives in the world.

4 Since demand is becoming truly global now rather than just US, China, Japan and Germany, Indian manufacturers can look at Africa as additional market for PV modules. India has compulsory domestic PV module manufacturing in National Solar Mission that could generate a demand of 3-4GW a year. What is a realistic Indian Solar Energy Installation Target by 2022? To achievee massive target of 100GW over next 7 years, we will need at least 3-5GW of domestic capacity because 40GW is going to be the demand from distributed energy resources. Thanks to poor quality electricity supply in India, Indian houses have to spend a lot of money on additional accessories. A normal upper middle class house has couple of Constant Voltage Transformers (CVTs), battery back-up to cleaner and cheaper energy source of Solar PV module installations. Since these installations are going to be 10kW-100kW, they will be a major driver of achieving 40GW roof-top targets especially in the states where even residential energy tariff is above of 4 hours (for lights/ fans) and a diesel generator. Gradually people will move from these equipment INR7/kWh. Commercial and industrial effective tariff touches INR10/kWh in parts of Maharashtra during summers. Rest of the country easily pays higher than INR7/kWh after adding CVT/battery/ diesel costs. All in Cost important here because of smaller installations, other advantages for local manufacturers are prominent on account of following factors: 1. Close proximity to good demand drives the location of PV module manufacturing facility. 2. Priority is given to shorterr lead times and faster turn-around. 3. Less handling of shipments is also important factor. All these smaller installations is a kind of retail business that is being handled by smaller like Photonix and large PV manufacturers (Indians) like Vikram etc. This 40GW target looks most feasible because state utilities are not going to improve and spending additional INR750,000/- (10kWp) for single family homes and INR6.5m for multi-family homes is not really a big expenditure for uniterupted clean power. Local staff for service and sales with demonstration of operating PV installations at consumers is basic requirement for retail business. For industrial and commercial consumers (C&I), there are players like Amplus Solar to install capacities so no upfront costs for C&I consumers. Thus, 40GW roof-top may be the first target to be achieved by Ministry of New and Renewablee Energy (MNRE). Additional 20GW is goingg to be promoted by Solar Energy Parks by Solar Energy Corporation of India (SECI) Ltd, in association with state owned electricity utilities. In such solar parks, the state transmission utility is supposed to

5 provide evacuation of power while state distribution utility has to sign PPA as a part of Renewable Energy Obligation (RPO). With tremendous push from state governments like Rajasthan, Madhya Pradesh and Talangana, this target also looks possible because Independent Power Producers have been bidding aggressively in such auctions just like they do in National Solar Mission where players Like NTPC Ltd (AAA credit rating) buy all power. So all 20GW of capacity installation looks feasible. The real challenge could be achieving 40GW of solar utility grade projects. Today we see even players with 5-6MW are selling energy to NTPC VidyutVyapar Nigam Ltd (NVVNL) with fantastic 18% return on equity (RoE). When it comes to state distribution utilities, power evacuation as well as timely payments for power purchase remains a challenge. Such projects also face bureaucratic hurdles where no one in Indian Polity has any solution right now. In Indian bureaucratic history, only one Prime Minister Mr A. B. Bajpayee (NDA) had used professionals as secretaries in key ministries like Finance and Energy. Achieving 40GW utility grade solar capacity could be feasiblee if solar tariff falls to INR5/kWh by Otherwise this segment wheree all international players would be active remains a pipe-dream. We think here we could achieve maximum 20-25GW target To conclude, we can keep 80-85GW of solar capacity installations in India by What Greentech Media says about India s attractiveness in PV module manufacturing? The Greentech Media has designed PV module manufacturing attractiveness index on 4 key measures and assigned weights to them as follows: 1. Business Environment 10% 2. Access to demand 40% 3. PV manufacturing support 15% 4. All in costss 35% This publication has ranked India 6th most attractive destinationn in PV module manufacturing in the world. According to them, PV manufacturing attractiveness solely depends on access to demand and all-in- costs. Thanks to cheap labour, India has one of the lowest all-in-cost while access to local 80-85GW of demand by The other players ranked above India by Greentech Media are as follows:

6 1. China 2. Singapore 3. Taiwan 4. Malaysia and 5. USA How big is this opportunity? India has small PV manufacturing facilities today like Photonix and a large one viz. Vikram but they look smaller when compared to global players. India needs 2-3 domestic players with 1,000MW each capacity and then it will also need 5-6 smaller players with MW capacity each. This 4-5GW (4-5000MW) of domestic capacity could be great advantage when over-capacity falls to just 26% in To keep the momentum of solar installations when crude oil is just USD50/barrel, we need cheaper PV modules and check on balance of system (BoS) costs. Such capacity additions are going to be cheaper from capital expenditure point of view but will need excellent retail network for 40GW roof-top installations and tie up with local engineers with standard products. Establishing distribution network and engineers, these companies will need more working capital than capital expenditure. Once all set up, these companies could earn INR165bn (USD bn) a year in revenues at current PV module prices and could earn INR24-35bn (USD4-600m) in operating profits (EBITDA) by When can India be a leader in PV module manufacturing? We strongly feel that India could be leader in PV module manufacturing despitee weak business environment, logistics and supply chain. This could happen on account of higher demand and low cost advantages especially on the back of army of engineers who need just 45 days of on-site training. We may also be able to tap North Africa and Gulf Cooperation Council (GCC) market, thanks to our proximity with these countries. Chinese/ Taiwanesee players could establish their capacities in India for local as well as exports demand. Some of the points that can take us to PV manufacturing leadership are summarised as follows:

7 India can benefit from rising demand in India as well as North Africa and GCC countries; as they will be competent on all-in-cost compared to Chinese players by India offers long term incentives to the developers and manufacturers. This provides upfront as well as long term tax incentive (10 years) to the solar industry. China will remain winner in the game because of massive Chinese demand but rising labour cost (shrinking labour force) could limit its lead. India s PV module manufacturers may improve furtherr when it develops its own supply chain over its raw material like manufacturing poly-silicon and solar cells by Thanks to its low cost advantage and cheap skilled labour, India could move to top slot by 2020 if it improves its business environment (bureaucratic reforms) along with tax incentives.