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Renewable Energy Dispute at WTO between the US and India
India’s and the United States argument over local content rules for renewable energy projects seems to have been settled. Solar manufacturers are not dismayed by the World Trade Organization’s upholding of the U.S. complaint against India. The ruling was along expected lines, but project developers who are importing equipment are worried that the government may reciprocate by imposing duties on imports.
The domestic content requirements were part of India’s efforts to build a homegrown solar industry. The National Solar Mission (NSM) provision stipulates that 10% of the modules used in Indian solar plants should be produced locally. Such local content rules (with the exception of sensitive areas such as national defense) are not allowed.
The US originally lodged a complaint with the WTO against India’s domestic content requirements in 2014, prompting the subsequent appeal and filing of complaints from India regarding eight of the U.S.’s renewable energy programs.
Last week, however, the WTO appellate body upheld its original ruling that found India had broken WTO rules by requiring developers of solar power projects in India to use locally made cells and modules. The Panel agreed with the United States that India’s domestic content requirements discriminate against U.S. solar cells and modules by requiring solar power developers to use Indian-manufactured cells and modules rather than U.S. or other imported solar technology in breach of international trade rules. In an important outcome the Panel rejected India’s defensive arguments and determined that India’s local content requirements are inconsistent with the national treatment obligations.
The case reached a head in February when India lodged the appeal, claiming exemptions from WTO trade rules on the basis that its NSM and solar sector was included in government procurement, and that its domestic solar goods were in short supply.
The WTO rules are clear: countries are not allowed to favor local producers of components while discriminating against imports. In seeking to boost India’s domestic manufacturing industry, the government’s NSM outlined certain local content requirements across the country, and thus was in violation of these regulations.
And as expected, the recent appeal to overturn US complaint that India’s domestic content requirement for its solar power sector is discriminatory rejected by the WTO.
Prior to the WTO’s decision last week, India lodged its own complaints against eight U.S. renewable energy programs, arguing that a number of state-led policies include ‘buy local’ stipulations, including one program in California which offers a rebate incentive for developers that use wind energy technologies manufactured in the state. The World Trade Organization has ruled against India and delivered a victory to American companies producing solar batteries and equipment.
If the US government was to impose anti-dumping duties on foreign modules, it could prove a problem for manufacturers importing to the US. Re-imposing an anti-dumping duty on solar modules (which was abolished in late 2014) would raise their cost for foreign developers and render foreign solar tariffs less competitive.
“We would not expect that the WTO decision would strongly influence or decelerate the development of a domestic solar industry in India. The recent tenders for power purchase agreements (PPA level) of PV power plants showed succeeding bids below 5 INR/kWh (below 7 EURcents/kWh). Just this week, Solar Energy Corporation of India (SECI) has awarded 450 MW of solar capacity in the state of Maharashtra, with the lowest bids involving viability gap funding (VGF) so far. The benchmark tariff was set at INR 4.43/kWh (6 EURcents/kWh) combined with VGF support. However, Vijay Printing Press actually bid for a tariff of just INR 4.42 with no VGF. As the PPA tariff levels are expected to decrease further to below 4 INR/kWh (below 5 EURcents/kWh) in 2017, the cost pressure on solar equipment applied in India would require local equipment manufacturing, thereby benefiting from the significantly more attractive costs of goods, manufacturing and labor in India.” Günter Maier, Founder of E-nable+ commented.