SDG 7: Affordable and Clean Energy | SDG 9: Industry, Innovation and Infrastructure
Ministry of New and Renewable Energy (MNRE) | Ministry of Commerce and Industry
An OECD policy brief highlights that the solar cell and module production sector has been the most heavily subsidized of the 15 major industrial sectors covered by the MAGIC database from 2005 to 2024. During this period, subsidies for solar firms averaged nearly 3.2% of their annual revenue, vastly exceeding the overall industrial average of 0.9%.
Market Dominance and Over-Capacity
Geographic Concentration: Large-scale subsidies have enabled the People’s Republic of China to gain a combined global market share of at least 80% across the entire solar value chain, including polysilicon, wafers, cells, and modules.
Decoupling from Demand: Excessive government support has incentivized continuous investment in production capacity regardless of market conditions, leading to sustained supply-demand imbalances.
Impact on Competitors: Producers based in OECD countries (such as Germany, Japan, and the U.S.) have seen their combined market share plummet from 80% in 2005 to below 10% in 2023.
Economic Hardship in 2024
Financial Reversal: By 2024, the sector witnessed severe price declines, forcing some companies to sell modules at prices below their break-even point, which failed to cover basic operational and interest expenses.
Profitability and Jobs: This decline led to falling sector revenues, sizable financial losses, and significant job cuts, despite government grants in China remaining at an elevated level.
Erosion of Innovation: The OECD warns that while subsidies can address market failures, excessive amounts can actually erode profitability and undermine long-term global innovation and competition.
What is the ‘MAGIC database’ mentioned in the OECD report? The MAGIC database (Measurement and Analysis of Government Investment and Carbon) is a specialized OECD tool used to track and analyze industrial subsidies across different sectors and countries. It quantifies various types of government support—including grants, income-tax concessions, and below-market borrowings—as a percentage of a firm’s annual revenue. This allows policymakers to compare subsidy levels internationally and identify market distortions that may lead to geographical concentration or the exit of efficient, non-subsidized competitors.
Policy Relevance
The high concentration of the solar value chain poses a significant risk to global energy security and value chain resilience, leaving downstream companies and consumers entirely reliant on a single geographic source.
Strategic Impact for India:
Competition for PLI Schemes: The report highlights that India’s Production Linked Incentive (PLI) initiatives must operate in a market where subsidized global over-capacity has already created an “unassailable advantage” for dominant players.
Risk of Value Chain Disruptions: With China controlling 80%-95% of various manufacturing segments, India’s ambitious target of 500 GW of non-fossil capacity by 2030 faces heightened risks from potential value chain disruptions.
Avoiding Subsidy Races: The OECD suggests that nations should cooperate to address the root causes of market distortions rather than simply engaging in a “subsidy race” that may further erode industry profitability.
Lessons for Emerging Sectors: The solar sector serves as a cautionary tale for India’s other green initiatives, such as wind turbines and green hydrogen, to address industrial subsidies before they lead to extreme market concentration.
Relevant Question for Policy Stakeholders: How can India balance its immediate need for low-cost solar imports with the long-term strategic necessity of building a financially viable and independent domestic solar value chain?
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