The incentive will be tapered annually over five years, says Ministry
The size of the Central government’s production-linked incentive for new solar module manufacturing plants will be determined on the basis of their sales volume, the extent of domestic sourcing of raw materials, and the efficiency of their modules, particularly under higher temperatures.
The incentive will be tapered annually over the ₹4,500 crore scheme’s lifespan of five years, according to guidelines announced by the Ministry of New and Renewable Energy on Thursday.
“In order to give a signal to solar PV manufacturing industry that they will need to be competitive after five years, the incentive rate will be higher in the beginning and lower towards the end of five-year period,” the Ministry said. By the fifth year, the incentive will have progressively reduced by 25 per cent of the initial amount.
“We are in an expansion mode and this scheme will definitely boost our plans,” Saibaba Vutukuri, CEO of Vikram Solar, told BuisnessLine.
Complex incentive structure
However, enthusiasm from bidders will be dampened by the complexity of the incentive structure, said Vinay Rustagi, Managing Director at Bridge To India. “There are a number of bidding criteria, and the design seems to be extremely complex with a complicated payment structure. We expect that many bidders will lost interest,” he said.
Bridge To India estimates that the incentive will amount to less than 10 per cent of the sales cost. “We believe that if bidders don’t get 10 per cent or more effective subsidy, they will lose interest,” Rustagi added.
According to the guidelines, a plant must have a capacity of at least 1,000MW to be eligible for the scheme. That is a high participation threshold for the industry, Rustagi said, considering that most manufacturers are currently smaller in size.
The Ministry will calculate the incentive on half the production capacity that the manufacturer sets up, or on 2,000MW, whichever is smaller, “to accommodate at least three manufacturers under the overall envelope of ₹4,500 crore.“ This means that the incentive will be capped for plants with a capacity greater than 4,000MW.
Apart from directly impacting the size of the incentive, the extent of local sourcing of materials will also determine when the five-year incentive period kicks in. The maximum flexibility of three years has been given to manufacturers who plan to commission fully integrated plants that will produce modules directly from polysilicon, the most basic raw material in the production chain.
“In case a selected manufacturer fails to meet the extent of integration or manufacturing capacity promised at the time of selection, he will not get any incentive till he overcomes these deficiencies,” the Ministry added. “However, in such cases, the manufacturer will not be able to get the incentive for full five years.”
Earlier this month, the Cabinet approved ₹4,500 crore for the incentive scheme, to be funded through the budgetary allocations for the Ministry. The 2021-22 budget allotted ₹2,606 crore to the Ministry for the solar industry, 66 per cent higher than the revised estimates of allocations in the previous year.