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Green Industrial Policy and Energy Access in India

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Green Industrial Policy and Energy Access in India Dissertation Let There Be Light Green Industrial Policy and Energy Access in India Tobi A. Oluwatola This document was submitted as a dissertation in December 2016 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Aimee Curtright (Chair), Rafiq Dossani, and Shanthi Nataraj. PARDEE RAND GRADUATE SCHOOL For more information on this publication, visit http://www.rand.org/pubs/rgs_dissertations/RGSD388.html Published by the RAND Corporation, Santa Monica, Calif. © Copyright 2017 RAND Corporation R® is a registered trademark Limited Print and Electronic Distribution Rights This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial use. For information on reprint and linking permissions, please visit www.rand.org/pubs/permissions.html. The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous. RAND is nonprofit, nonpartisan, and committed to the public interest. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. Support RAND Make a tax-deductible charitable contribution at www.rand.org/giving/contribute www.rand.org Abstract Emerging economies expect to benefit by developing their manufacturing capabilities in high value-added sectors, especially in technologically advanced sectors. Governments often use industrial policy to stimulate a transition from low to high value-added manufacturing, especially in sectors in which the country may have a latent comparative advantage. The solar sector is one such sector that has been identified by the Indian government. A number of policies have been introduced to support the development of a solar industry in India with the goal of installing 100 GW of solar power by the year 2022. The policies cover the spectrum of industrial activity, from early stage manufacturing to generation, with a target of 5GW of annual manufacturing capacity by 2022. This scenario raises several key policy questions: Which parts of the supply-chain are feasible for manufacture in India? Are the policies in place adequate to induce the realization of its latent comparative advantage? What specific policies need to be implemented to enable this transition, if any? Focusing on the key components of the crystalline silicon photovoltaic (c-Si PV) supply chain (polysilicon, wafers, cells, modules), this study specifically asks the following targeted questions: First, what is competitiveness of India’s domestic manufacturing across the supply chain? Second, what are the barriers and enablers to developing a domestic industry? And, third, what is the cost of industrial policy support? These three questions are answered with a mixed methods approach. First, we study trade data to identify revealed comparative advantage. Second, we analyze the results of face-to-face interviews with 27 senior industry practitioners, policy makers, and academics to obtain insights on the barriers and enablers of the domestic industry in India, along with related issues. Third, stochastic cost accounting and financial models were developed and used to estimate the cost and returns of setting up new manufacturing plants in India in different components of the c-Si PV supply chain. The study of trade data revealed no comparative advantage in any of the components of the value-chain. Our interviews revealed that respondents felt that this was due to the early stage of the industry in India and that, as the industry matures, comparative advantages will surface. Interestingly, there was limited interest by manufacturers and developers in new policies or incentives from the Indian government. This again contrasted with some of our cost analyses, which found upstream manufacturing in certain key areas of potential growth; production of polysilicon, wafers and cells are not currently viable in India but modules could potentially be viable if barriers to input cost such as duties in imports and logistical costs are reduced. iii Table of Contents Abstract .......................................................................................................................................... iii Figures............................................................................................................................................ ix Tables ............................................................................................................................................. xi Acknowledgments........................................................................................................................ xiii Abbreviations ................................................................................................................................ xv 1. Introduction ................................................................................................................................. 1 1.1 Motivation and Policy Relevance ...................................................................................................... 1 1.1.1 Jawaharlal Nehru National Solar Mission (JNNSM) ............................................................... 1 1.1.2 US-India World Trade Organization (WTO) Case .................................................................. 2 1.2 General Aims and Research Questions .............................................................................................. 2 1.3 Organization of Report....................................................................................................................... 4 2. Overview and Background ....................................................................................................... 5 2.1 India’s Socio-Economy ...................................................................................................................... 5 2.2 Growth and Electrification ................................................................................................................. 6 2.2.1 State of Energy Access for India’s Poorest States ....................................................................... 9 2.2.2 Cost of Meeting India’s Energy Needs: Coal vs. Solar ......................................................... 10 2.3 India’s Solar Industrial Policy .......................................................................................................... 12 2.4 Brief Overview of Solar PV Technologies ...................................................................................... 13 2.4.1 PV Production Chain ............................................................................................................. 13 2.5 Industrial Policy ............................................................................................................................... 14 2.5.1 Theoretical Foundations for Industrial Policy ........................................................................ 15 2.5.2 Problems with Industrial Policy ............................................................................................. 19 2.5.3 Desirability of Solar IP in India ............................................................................................. 21 2.6 Solar Industrial Policies of Top Solar Manufacturing Countries ..................................................... 21 2.6.1 The United States ................................................................................................................... 22 2.6.2 China ...................................................................................................................................... 24 2.6.3 Germany ................................................................................................................................. 26 2.7 Competitiveness Analysis Methodology: Revealed Comparative Analysis .................................... 29 2.8 Discounted Cash Flow Analysis Using Capital Asset Pricing Model ............................................. 30 2.8.1 Capital Asset Pricing Model (CAPM) ................................................................................... 32 2.8.2 Reliability and Choice of Beta ............................................................................................... 33 2.9 Contributions to the Literature ......................................................................................................... 33 3.1 India’s Solar Electricity Policy Roadmap ........................................................................................ 35 3.2 Solar PV Manufacturing Capacity in India ...................................................................................... 37 3.3 Solar PV Development in India ....................................................................................................... 39 3.4 Impact of Domestic Content Policy on India’s PV Industry ............................................................ 40 3.5 India’s Competitiveness
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