The global wars in the solar industry are heating up with each passing day. While on one side world leaders like President Biden and Modiji have been announcing ambitious targets to shift to renewable energy. On the other side, China is waging a price war on India with its exorbitant price hikes on the import of solar modules. This has resulted in the historic solar war between India and China.
While on one side, the Chinese vendors are using their monopoly to make it very difficult for India to progress, on the other side, we’ve got legendary industrialists like Ambani, Adani, and the Tatas who are pushing their limits to turn India into a solar superpower. The question is, what is this solar war all about? How is China trying to strangle the growth of India? What is India doing to stand up against the Chinese powers? And most importantly, from the investor standpoint.
With the emergence of a major industry, what are the factors and companies that you need to keep an eye on to make the best out of the solar revolution of India? The first thing we need to understand is why is solar energy such a big deal for a country’s economy in the 21st century? People, as we all know, oil has shaped the 20th century more than any other commodity and the quest for oil has led countries to go to war, dictated foreign policies, determined global dominance, and.
Overall, it has majorly transformed the global economy. But with the crisis of global warming at hand in the 21st century, developed countries have no other choice but to curb their emissions and move away from fossil fuels. This is the reason why there have been so many global summits where world leaders have ambitiously pledged their transition to clean fuels. However, this task is easier said than done, because this is what the numbers look like.
As of 2019-20, coal and crude petroleum together accounted for 76.61% of India’s energy consumption, whereas electricity from hydro, nuclear, and others combined only accounted for 14.3% of our consumption. And this is not just the case in India, but with every other nation in the world. Even the US as of 2020 has only 12% of energy coming from renewable resources, whereas natural gas, petroleum, and coal accounted for 79% of their consumption.
This is the reason why leaders from all across the world are working very hard to transition to solar energy production. But the question we hear is, why are all the countries shifting to solar and wind now? I mean, we always knew that coal was causing pollution, we always knew about oil dependency, and we also knew that emissions are bad for the environment, then why are we talking about solar and the wind suddenly in 2021, rather than 2010? And why aren’t we using nuclear power instead?.
Well, the answer to this lies in this mind-boggling chart that I found, and this is what it looks like. As of 2009, the cost of electricity from coal was $111 per megawatt-hour, the cost of nuclear was $123, the wind was $135, and solar was extremely costly with a price tag of $359 per megawatt-hour. But you know what, guys, as of 2019, while the cost of electricity from coal has dropped by just 3% to $109, the cost from nuclear has increased by 26% to $155.
Whereas the cost of onshore wind has dropped by 70% to just $41 per megawatt-hour. And the cost of solar has dropped by 89%, from $359 to just $40 per megawatt-hour. And even if you consider the cost of solar from different countries, and then compare them with the entire range of electricity costs from fossil fuels, you will see that solar is almost on the verge of providing you with the cheapest electricity in world history.
This is the reason why they say “Just like the country with oil went on to become a dominating force in the global economy, in the 21st century, the country that dominates the solar supply chain, the technology, and the manufacturing capacity will go on to become a global superpower.” And this is where the India-China solar war comes in. The question is, what is this India-China solar war all about? Well, if you look at the primary components needed to set up solar panels, you will need three major.
Elements. Polysilicon, ingots, and wafers, wherein polysilicon is the raw material used to make solar ingots and wafers. And the scariest fact is that China alone controls 64% of polysilicon materials all across the world. And its share of manufacturing of solar ingots and wafers is nearly 99%. And as of March 2021, close to 80% of all solar equipment used in India is coming from China. And in 2018-19 alone, India imported $2.16 billion.
Worth of solar photovoltaic cell panels and modules. And despite this heavy dependency, we only achieved 100 gigawatts out of the 280 gigawatts solar target for 2030. So now the question is, what is India doing to get ahead of China in this solar wall? Well, the first thing that the government is doing is that it is disincentivizing the import of solar components. India has imposed a 15% duty on the imports of solar components in July 2020 and from April 2022 onwards, a 40% customs duty.
Will be levied on solar modules and 25% on solar cells. Apart from that, the duty on the import of solar inverters has increased from 5% to 20%. All of this is being done just so that the giant players will prefer to order from domestic manufacturers so that domestic production of solar components can become viable in India. In addition to that, the government is also mandated that all solar power projects under the government-sponsored scheme such as the new rooftop scheme will only have.
Domestically manufactured solar modules and cells. And the second phase of the strategy is by incentivizing domestic manufacturing and this is where the Tatas, Ambanis, and Adanis come in. The Indian government has offered lucrative incentives to promote domestic manufacturing as a part of something called a production-linked incentive scheme. If you know how this works, please skip to this timestamp. If you don’t, here’s a very, very simple explanation.
Of the same. People when it comes to setting up giant factories the biggest pain for a company is the exorbitant amount of investment which goes up to 1000s of crores. And this heavy cost is incurred to import giant machines from across the world, the heavy cost of land and the construction cost of the factory, and then, of course, there is the cost of labor. Therefore, the entry barrier and the risk are very high for a company to set up their factory in India.
So what the government does is under the production linked incentive program, the government decreases their initial cost by giving them tax incentives. For example, the government will tell the company that it will not charge import duty to bring in the machinery from other countries or it will give them a 30% tax rebate on the land if it is acquired in a special economic zone or it will not charge taxes for the first year of the company’s operation. This way, if you see the entry barrier for a.
The solar company is reduced such that it becomes much easier for them to set up their factories. Now on the outside, it might look like the government is unnecessarily losing hundreds of crores worth of taxes, right. But you know what guys, the production-linked incentive scheme gives the government three incredible superpowers in the long run. Number one, when the company starts functioning and start selling solar panels, the government will be able.
To get a recurring income for the next 20 to 50 years from every single solar panel sold by the company. Number two, the company will have hundreds of white-collar employees who will again pay taxes and 1000s of jobs will be created for the blue-collar workers which is an invaluable contribution to the economy of the country. And last and most importantly, with the establishment of the solar industry, the dependency on fossil fuels decreases, which is the goal of the scheme.
In this case, India’s 2021-22 budget has already allocated approximately $620 million to promote the domestic production of high-efficiency solar components. And nearly half of this allocation has gone to two of India’s public sector companies which are Solar Energy Corporation of India and the Indian Renewable Energy Development Agency. And according to the Ministry of New and Renewable Energy, the National Programme on high-efficiency solar PV modules targets direct employment.
30,000 people and indirect jobs to 1.2 lakh people. This is how the production-linked incentive scheme works out. And one of the major developments in this process was in June 2020 when Adani Green bagged the solar contract from the Solar Energy Corporation of India, and this was to develop eight gigawatts of projects whose transaction was valued at $6 billion. After this contract is when Adani Green came to the limelight, because of which the stocks have shot up from just.
400 rupees in June 2020 to close to 1000 rupees in June 2021. Apart from that Reliance Industries, Adani group, Tata Power, First Solar, and 16 other firms have bid for setting up solar manufacturing units under the government’s PLI scheme. And the total investment costs for the same is about $3 billion. And here’s a list of classifications of bidders and their categories. I’ll also attach relevant articles.
For you to read in the description. Meanwhile, Borosil Renewables is going to be a major player in the solar space of India because it is the first and only manufacturer of solar glass in India. And now Borosil Renewables has announced its plans for doubling its capacity to 900 tonnes per day with a planned investment of Rs 500 Crores. This capacity is enough to power 2.5 gigawatts of solar plants in the upcoming times. These are the measures that India has taken in.
Order to stand up against the Chinese powers. And until now, we have succeeded in drastically reducing the imports of solar components from China, because of which our total imports have gone down from $3.42 billion in 2018 to $1.7 billion in 2019, to just $1.2 billion in 2020. Now, the question is, is it so obvious that India is going to be the next solar superpower? And considering that from the investor standpoint, should you just blindly invest in all the solar.
Players like Adani, Reliance, Tata Power, and Borosil? Well, not really. And this brings me to the most important part of the episode and that is the challenges and the factors that you need to keep an eye on before you invest in solar or related stocks. Meanwhile, if you’re keen on investing in specific Indian companies that are now standing up against the Chinese industries, you must check out the China Plus One strategy small case.
The small case is this wonderful company that helps you strategically invest in a basket of stocks such that you can get the best return on investment in any market condition. In this case, as I said, the most relevant small case is the China Plus One strategy small case. This small case consists of handpicked stocks of companies from different sectors like textile, electronics, and even renewable energy sectors. The best part is that the small case manager himself.
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Small case app from the link in the description. Moving on to the challenges here are the pointers that you need to keep an eye on before we invest in solar or similar stocks. Number one, India’s solar industry is still far behind China, both in terms of production and innovation. While we have about 246 patents, the Chinese are already way ahead with 39,784 patents. Now although this does not directly indicate the.
The effectiveness of innovation is an indicator of the gap that we have between ourselves. Number two, China still makes up 80% of the total imports of the Indian renewable industry and this figures balloons to 95% when Chinese origin companies operating out of Vietnam and Thailand are taken into account. And this means that Chinese vendors can easily hike up prices. This has already started happening. According to July 2021 report, the cost of solar.
Modules were 18 cents per watt last September. This rose to 22 cents earlier this year. And the Chinese suppliers have now increased it to 24 cents. The prices of polysilicon have gone up by 343% since July last year and zoomed by 140 8% since January itself. And because of this, the module costs have surged by 33%. And every time the price hike happens, hundreds of crores are taken out from the Indian pockets within a jiffy. So keep a very close eye on these important market updates.
Can both slowdown and speed up the solar revolution of India. And the easiest way to keep track of them would be to use the Small case news section or by subscribing to their newsletter. And lastly, this solar revolution is going to bring in the iconic business war between Adani, Ambani, and Tata Power. So keep a very close eye on the contracts and the biddings that are happening because these giant contracts are very good indicators to understand both the trajectory and the growth of these companies.
That’s all from my side for today guys. If you learned something valuable, please make sure to hit the like button to make YouTube baba happy. And for more such free business and political case studies, please subscribe to our channel. Thank you so much for watching. I will see you at the next one. Subtitles by:- submit.in