Role of PLI scheme in India’s quest for clean & affordable energy

The Production-Linked Incentives (PLI) scheme is the latest addition to the list of reforms introduced under the aegis of the ‘Aatma Nirbhar Bharat Abhiyan’ (Self-Reliant India) initiative.

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By: Pankaj Singh
Updated: 20 January, 2023 12:05 am IST

Prime Minister Narendra Modi mooted the idea of the ‘One Sun, One World, One Grid’ initiative at the first assembly of the International Solar Alliance in October 2018, at COP 26 in Glasgow. PM Modi reiterated that the initiative will not only reduce storage needs but also enhance the viability of solar projects. This creative initiative will not only reduce carbon footprints and energy costs but also open a new avenue for cooperation between different countries and regions to meet the Nationally Determined Contributions (NDCs) under the Paris Agreement.

According to the One Sun declaration, the main areas of work of the Initiative will be inter alia, “investing in solar, wind storage and other renewable energy generation in locations endowed with renewable resources for supporting a global grid, building long-distance cross border transmission lines to connect renewable energy generators, developing and deploying cutting edge techniques and technologies to modernize power systems, supporting the global transition to zero-emission vehicles, attracting investment into solar mini-grids and off-grids systems to help vulnerable communities gain access to clean, affordable and reliable energy, developing innovative financial instruments, market structures for solar grid infrastructure”.

Building upon PM Modi’s panchamrit (five nectar elements) pledged at the 26th Conference of Parties (COP26) in Glasgow, included the target of net-zero emissions by 2070, India updated its NDC in August 2022 as follows:

  1. Meet 50% of India’s cumulative electric power installed capacity from non-fossil sources by 2030.

  2. Reduce the emission intensity of GDP by 45% below 2005 levels by 2030.

  3. Put forward and further propagate a healthy and sustainable way of living based on the traditions and values of conservation and moderation, including through a mass movement for LiFE – Lifestyle for Environment as a key to combating climate change.

 The Production-Linked Incentives (PLI) scheme is the latest addition to the list of reforms introduced under the aegis of the ‘Aatma Nirbhar Bharat Abhiyan’ (Self-Reliant India) initiative. The scheme aims to make domestic manufacturing competitive at the global level and to create global champions in manufacturing. The strategy behind the PLI scheme is to offer companies incentives on incremental sales from products manufactured in India, over the base year.

They have been specifically designed to boost domestic manufacturing in sunrise and strategic sectors, curb cheaper imports and reduce import bills, improve the cost competitiveness of domestically manufactured goods, and enhance domestic capacity and exports. The scheme also invites foreign companies to set up units in India alongside encouraging local companies to set up or expand existing manufacturing units, generate more employment and cut down the country’s reliance on imports. It will also have beneficial spill-over effects via the creation of a big supplier base for the anchor units established under the scheme.

A common criticism frequently directed towards the PLI scheme is the government’s intention to return to an import substitution policy. While the scheme aims to replace imports and help the country become self-sufficient, it looks at export-led growth rather than import substitution to power domestic manufacturing. 

With the global economy gradually emerging from one of its deepest recessions, global trade activity is also likely to get a cyclical upturn going forward. In India’s case, there has also been focus on structural reforms that can set a foundation for robust growth and a greater role of domestic industry in the global value chain. Based on sectoral strengths and potential opportunities, the PLI scheme identifies a few champion sectors that will support domestic manufacturers in achieving economies of scale and expanding their footprint in the global market. 

A large part of the climate finance needed by India can come from sustainable finance markets, which have grown in leaps and bounds over the last couple of years. Until now, Indian companies have struggled to attract a large part of this capital pool due to shallow and illiquid domestic capital markets (especially for debt) which restrict investment opportunities and increase illiquidity risks, a lack of transparent, consistent, and comprehensive environmental social and governance (ESG) disclosures. 

In 2021, Indian Renewable Energy Development Agency Limited (IREDA), a PSU under the Ministry of New and Renewable Energy (MNRE), invited bids from the Solar Module Manufacturers for setting up solar manufacturing units under the Central government’s ₹4,500 crore PLI scheme. MNRE appointed IREDA as the implementing agency for the scheme. The Union Cabinet had earlier approved ₹4,500 crores scheme to boost domestic manufacturing of solar Photo Voltaic (PV) modules. 

The New India is powered by clean energy and fast moving towards meetings its renewable energy targets by promoting the local generation of solar power through the PLI scheme. “To achieve solar energy targets by the year 2030, ₹19,500 crore is to be allocated for the PLI  announced by the Central government in the 2022-2023 Budget. 

The National Programme on High-Efficiency Solar PV Modules was approved by the Union Cabinet on  September 21, 2022. It aims to build an ecosystem for the manufacturing of high-efficiency solar PV Modules where the Solar PV Manufacturers will be selected through a transparent selection process. It further aims for about 65,000 MW per annum manufacturing capacity of fully and partially integrated, solar PV modules to be installed in India.

 The scheme entails a direct investment of around ₹94,000 crores. It will create manufacturing capacity for Balance of Materials like EVA, solar glass, back sheet, etc. The entire programme will generate direct employment of about 1,95,000 persons and Indirect employment of about 7,80,000 Persons. Further, there will be a scope of Import substitution of approximately about ₹1.37 lakh crore.

 The solar capacity presently depends largely upon imported solar PV cells and modules as the domestic industry has limited operational capacities of solar PV cells and modules. The National Programme on High-Efficiency Solar PV Modules will reduce import dependence in a strategic sector like electricity and as such reinforce the Atmanirbhar Bharat Initiative. Finally, this will boost Research and Development to achieve higher efficiencies in Solar PV Modules.

The government under the leadership of Prime Minister Modi has taken several initiatives for incentivising local development and manufacturing of renewable energy technologies such as the imposition of Basic Customs Duty on the import of solar PV cells & modules. The government has announced the imposition of Basic Customs Duty (BCD) on the import of solar PV cells and modules with effect from April 2022.

Procurement and use of domestically manufactured solar PV modules and domestically manufactured solar inverters have been mandated for government entities. The Ministry of New & Renewable Energy (MNRE) supports the “Renewable Energy Research and Technology Development Programme” through various research institutions and industries to enable indigenous technology development and manufacture of new and renewable energy in the country.

MNRE encourages research and technology development proposals in collaboration with the industry and provides up to 100% financial support to government/non-profit research organizations and up to 50-70% to Industry, start-ups, private institutes, entrepreneurs and manufacturing units. An amount of ₹62.47 crore has been spent in the last three years for this scheme, amongst other things. 

Government of India have taken several initiatives to for promotion and creation of new markets in the renewable energy sector such as, permitting Foreign Direct Investment (FDI) up to 100 percent under the automatic route, waiver of Inter State Transmission System (ISTS) charges for inter-state sale of solar and wind power for projects to be commissioned by 30th June 2025, declaration of trajectory for Renewable Purchase Obligation (RPO) up to the year 2029-30, setting up of Ultra Mega Renewable Energy Parks to provide land and transmission to RE developers on a plug and play basis, schemes such as Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM- KUSUM), Solar Rooftop Phase II, 12000 MW CPSU Scheme Phase II, etc, laying of new transmission lines and creating new sub-station capacity under the Green Energy Corridor Scheme for evacuation of renewable power, setting up of Project Development Cell for attracting and facilitating investments, standard bidding guidelines for tariff-based competitive bidding process for procurement of power from grid connected solar PV and wind projects. The government has issued orders that power shall be dispatched against a Letter of Credit (LC) or advance payment to ensure timely payment by distribution licensees to RE generators amongst other things.

Manufacturers will benefit if they source their material from the domestic market as the PLI amount disbursed will rise with increased module efficiency and increased local value addition. This is so the industry does not depend on subsidies in the long term but focuses on becoming more competitive. The minimum efficiency allowed has risen by one percentage point from tranche 1 of the PLI to tranche 2.

 As part of other initiatives, the government will bring in a PLI scheme to give impetus to the manufacturing of green hydrogen and its key component electrolyser with an aim to create the world’s largest electrolysis (green hydrogen generation) capacity of over 60 GW/5 million tonnes by 2030 for domestic consumption. This will help India meet the 500 GW renewable energy target. The government aims to become the world’s largest producer of green steel at 15-20million tonnes by 2030 — a pioneering effort to make green steel mainstream for the world; the world’s largest electrolyser annual manufacturer with a capacity of 25 GW by 2028; the world’s largest producer of green ammonia for exports by 2030. It may require up to 100 GW of green hydrogen. An investment of $1 billion into hydrogen research and development is required to enable breakthrough technologies for scale and speed.

The expansion of the production-linked incentives is among the most sought demands by industries and states ahead of the budget 2023. Though the majority of the private CAPEX incentivised by the scheme will not be seen until FY24, economists are optimistic that it will bring integration across supply chains, reduce import dependencies, and potentially generate 18–19 million jobs. 

With India celebrating ‘Amrit Kaal’ (a critical time to achieve the highest human potential), the focus is on growth and all-inclusive welfare, so that no one is left behind from the welfare schemes of the government. India envisages promoting technology-enabled development, climate change and energy transition. PLI scheme and the cut in corporate tax rates form an essential component of the Indian government’s strategy to attract foreign companies and capital to the domestic manufacturing sector.

The Central Electricity Authority estimates India’s power requirement to reach 817 GW by 2030, and most of the demand will come from the real estate and transport sectors. Rising foreign investment is expected to promote further investments in India. The allocation of ₹19,500 crore in the second tranche of the PLI scheme will boost the manufacturing of high-efficiency solar modules. There are many other initiatives taken by the government that will help accelerate clean energy innovation in India; for instance, India has launched the Mission Innovation CleanTech Exchange, a global initiative that will create a whole network of incubators across member countries to accelerate clean energy innovation envisaged by PM Modi.

Pankaj Singh is the former expert on Mission to the United Nations and an advocate at the Supreme Court of India.

(Views expressed are his own.)

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