[Answered] Examine the significance of domestic content requirements and upstream integration in strengthening India’s clean energy manufacturing. Evaluate how ensuring contractual sanctity and robust payment security mechanisms in the power sector are pivotal for achieving a sustainable energy transition.

Introduction

India’s clean energy transition underpins its Net-Zero 2070 pledge. With renewables attracting 80% of power-sector FDI (FY25), manufacturing depth and power-sector credibility are now decisive for sustainability and investor confidence.

Domestic Content Requirements (DCR): Strategic Significance

1. Reducing import dependence: For years, India relied heavily on Chinese solar modules and cells, exposing energy security risks. DCR under schemes like PLI for High-Efficiency Solar PV Modules has catalysed domestic capacity addition of 25.3 GW in 2024.
2. Industrial value creation: DCR pushes firms to invest locally, generating jobs, MSME linkages, and technology absorption, aligning with Atmanirbhar Bharat and Make in India objectives.
3. Technology upgrading: Adoption of TOPCon and bifacial technologies indicates movement up the value chain, preventing India from being locked into low-tech assembly roles.

Upstream Integration: The Missing Link

1. Structural imbalance: While module capacity has surged, wafer capacity remains at ~2 GW, with negligible polysilicon production, creating a “hollow manufacturing ecosystem”.
2. Strategic vulnerability: Dependence merely shifts from modules to wafers and polysilicon, risking supply shocks, price volatility, and trade coercion.
3. Global lessons: China’s dominance stems from vertically integrated solar value chains, supported by patient capital and coordinated industrial policy.
4. Way forward: Targeted incentives for polysilicon refining, ingot–wafer manufacturing, and shared infrastructure clusters can correct asymmetries.

Contractual Sanctity: Foundation of Investor Trust

1. Policy credibility: Attempts by States to renegotiate PPAs post-auctions undermine confidence, raising perceptions of regulatory risk.
2. Legal certainty: The Supreme Court in Gujarat Urja Vikas Nigam Ltd. v. Essar Power (2016) emphasised that contracts underpin market stability in power markets.
3. Cost of capital: Weak sanctity increases financing costs; India’s renewable capital cost is nearly 80% higher than advanced economies, eroding tariff competitiveness.

Payment Security Mechanisms: Financial Backbone

1. DISCOM distress: Chronic delays in payments create liquidity stress for developers, despite reforms like Late Payment Surcharge Rules (2022).
2. Investor risk: Without assured cash flows, banks price in risk premiums, slowing project execution and grid expansion.
3. Best practices: Mechanisms such as payment security funds, escrow accounts, and letter-of-credit enforcement must be uniformly applied.

Grid and Curtailment Risks

1. Transmission deficit: Around 60 GW of renewable capacity is stranded due to inadequate transmission, undermining utilisation efficiency.
2. Curtailment uncertainty: Absence of clear compensation norms for forced curtailment distorts financial modelling and discourages long-term investment.
3. International experience: Countries like Germany provide priority dispatch and curtailment compensation, reducing investor risk.

Implications for Sustainable Energy Transition

1. Manufacturing resilience: DCR plus upstream integration ensures energy sovereignty and supply-chain resilience.
2. Market confidence: Contractual sanctity and payment security reduce systemic risk, enabling low-cost finance and scale.
3. Climate leadership: Stable power markets are prerequisites for scaling green hydrogen, storage, and round-the-clock renewables.

Conclusion

Institutional trust sustains markets. Echoing President Droupadi Murmu, India’s energy transition will succeed only when policy credibility matches climate ambition.