Ref. No.: NSEFI/08/MNRE/2014

Date: March 24, 2014

Shri Tarun Kapoor, I. A. S.,

Jt. Secretary, Government of India,

Ministry of New and Renewable Energy,

Block-14, CGO Complex,

Lodhi Road, New Delhi-110 003, India

Dear Sir,

Subject: Domestic Content Requirement (DCR) category projects under JNNSM Phase II, Batch I

It may be recalled that we as National Solar Energy Federation of India (NSEFI), an umbrella organization, consisting of solar manufacturers, solar developers both PV and thermal, EPC contractors, financial institutions, consultants and other stake holders such as power exchanges, solar appliance manufacturers, service providers and MNRE channel partners met you on 12^th December, 2013 and appraised you about the activities and suggestions for the solar industry in India

Many of the developer members of the Federation participated actively in the recent 750 MW tender of JNNSM Phase II, Batch I conducted by Solar Energy Corporation of India (SECI). Companies have received allocation under the ‘Open’ and ‘DCR’ category both and have already started making good progress on open category projects.

However, developers are facing tremendous challenges in the DCR category for following reasons;

• Actual domestic cell manufacturing capacity available for current batch of NSM projects is far less than the claims made by domestic cell manufacturers. The operational capacity is not more than 100-150 MW/annum against the boiler plate / installed capacity of 500-700 MW. Most of the non-operational plants have very limited potential due to vintage equipment and technology and most of the Operational Capacities have also been unused or lying idle for quite some time. This would mean that not more than 30-35% of the projects will be completed.
• Many domestic cell manufacturing companies do not provide comfort of continued operations due to corporate debt restructuring (CDR) and other bankruptcy proceedings.
• Most of the Cell Manufacturers have almost Zero Production currently and will take 2-3 months or more to start production and the consistency is not guaranteed with the current Financial state of the Cell Manufacturers.
• Lenders are quite reluctant to support DCR category projects due to perceived quality issues.
• However, the most distressing and worrying feature is a supposed cartelization by some of the larger domestic cell manufacturers. Taking advantage of the procurement compulsions imposed by the Phase II conditions of domestic content, bidding having been completed and strict time limits having been imposed, the manufacturers have increased cell prices by a whopping 6-8 cents/Wp within few days of award announcement. This has made the Module Manufacturers increase the price per Wp by close to 15-16% than the initial quotes before bidding. This has made DCR projects economically unviable. With this attitude many of the developers are rethinking if they would like to do the projects under DCR category itself and debating if they should sign the PPA or not.

While India is defending the trade proceedings on DCR requirement in WTO, the supposed cartelization of domestic players is throwing the situation completely out of control and denting country’s image severely.

Developers are fully with the Ministry to support solar manufacturing in India, although they have argued for open competition to get the most efficient and cheaper cells and modules. Surely the Government did not visualize a situation where opportunities like this would be taken advantage of to extract higher prices. This is completely unethical and will completely erode trust with serious implications for the future. In view of the current cartelization behavior of domestic manufacturers, it has become impossible for developers to execute DCR projects. This is a serious threat to the Solar Mission. It will deter developers for future participation in DCR category. This will also be counterproductive from the perspective of anti-dumping duty proceedings. A quick resolution would be needed. One of the possible solutions could be if developers are allowed a time period of 24 months instead of current timeline of 13 months after PPA signing to execute DCR projects.

We believe this would be a win-win for both developers and manufacturers and help in following ways;

• The timeline would allow existing manufacturers to wriggle-out of current crisis and start production
• The extended timeline would also allow more number of projects to be supported by current manufacturing capacity and allow new manufacturing to be set-up
• Financial institutions would get adequate time to establish bankability of Indian cells and modules and support DCR projects. This would improve overall confidence around the DCR and help in subsequent batches of NSM.

In view of the above we ate NSEFI request you to consider extending the implementation timeline of DCR projects from 13 month to 24 month after PPA signing. We would be very happy to provide you any further clarification needed from our side. We hope a situation would be avoided where projects are not implemented for this reason. We also request if developers are allowed to withdraw from DCR category projects without forfeiture of EMD currently or future performance bank guarantees if situation remains unresolved.

Request swift action from your side, given the tight timeline of PPA signing and project execution.

Thanking you,

Yours faithfully,

(Deepak Gupta, IAS retd)

Director General