Why Trina Solar Is Building Manufacturing Capacity In India

Trina Solar (NYSE:TSL), the world’s largest solar panel manufacturer, will collaborate with Welspun Energy to build a 2 GW solar manufacturing facility in India. ((Trina Solar Plans $500 Million India Plant Amid Ban, Bloomberg, June 2015)) The construction of the plant, which would cost about $500 million, is planned in two phases and will take about 18 months to complete. 

Trina has been slowly diversifying its manufacturing base overseas in order to cut costs and work around trade barriers that it faces in markets like the E.U. and the U.S. For example, in May, the company said that it would invest about $160 million into its first overseas manufacturing plant (700 MW cell capacity and 500 MW module capacity), located in Thailand. In this note, we provide a brief summary of how manufacturing in India could impact Trina’s business.

We have a $15 price estimate for Trina Solar, which is about 10% ahead of the current market price. 

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Overcoming Trade Barriers In The U.S. And The E.U.

Trina has indicated that it intends to use some of its Indian manufactured products for export to the United States and the E.U. The move could lower the duties and related trade-restrictions that it faces on its cells and modules that are currently manufactured in China. Earlier this year, the U.S. International Trade Commission approved the imposition of final duties on Chinese and Taiwanese photovoltaic imports and Trina faces anti-dumping duty of 26.71% and a countervailing duty of 49.79%. ^[1] Although the company does not face punitive trade duties in Europe (like most other Chinese tier-1 manufacturers), its panels are subject to a minimum import price. By sourcing panels from India, Trina could become more competitive in the U.S. and the E.U., which are both promising markets for high-end solar products.

Catering To India’s Fast Expanding Solar Market

India is an ideal market for solar power given its high insolation levels, shortage of electricity, relatively high energy costs and growing concerns about greenhouse gas emissions. Solar installations are expected to grow to about 2.7 GW this year, according to consulting firm Bridge to India, up from less than 1 GW in 2014, making India one of the top five solar markets globally. Earlier this week, the government increased the country’s solar installation target fivefold, aiming to install 100 GW of capacity by 2022. According to the government, this would require investments to the tune of close to $100 billion, which could make India a huge growth market for global solar equipment manufacturers. While the detailed policy incentives to meet this goal are not clear yet, it’s quite likely that there will be some incentive for domestically manufactured panels. This could put Trina at an advantage compared to its Chinese peers who don’t have manufacturing operations in India.

Labor Cost Advantages, But Supply Chain Development Could Take Time

Manufacturing in India could help to lower Trina’s production costs, considering the country’s lower labor costs, potential policy incentives and its geographic proximity to China, which is the biggest source of photovoltaic raw materials and consumables. The hourly labor cost in India for manufacturing averages $0.92, compared with $3.52 in China, according to Boston Consulting Group. That said, there could also be challenges. China’s historical cost leadership in solar manufacturing was partly driven by supply chain developments and the country’s vibrant manufacturing ecosystem. However, solar equipment manufacturing in India remains in its infancy (module manufacturing capacity stands at under 3 GW vs. over 40 GW for China). This could mean that Trina Solar will have to build up its vendor base and potentially develop a supply chain from the ground up in India.

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