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