The Indian LED light manufacturing industry has witnessed major growth in the last few years. However, the Covid-19 pandemic has hit the sector hard like other manufacturing industries. How the segment is coping with the rapidly evolving situation? What are the challenges, the Indian LED light manufacturing industry is facing and how it is dealing the crisis?
LED lights have found a wide range of applications around us. From automotive to industrial, from households to electronic gadgets – LED lights are everywhere. With the Indian government’s increased focus on infrastructure development, electrification in rural areas, the LED industry has found new fuel to grow. However, the pandemic has created havoc for the sector, like the majority of other segments of manufacturing industries.
The LED light industry is mainly dominated by tube lights and bulbs through commercial applications in India. The other sectors of LED light applications are – residential, institutional and industrial. In terms of regions, North India dominates the market. The LED light industry is expected to see moderate growth over the next five years till 2026.
How the pandemic has disrupted the business of the LED light manufacturing industry? What are the changes the sector is witnessing? Autofintechs had an interaction with Raman Bhatia, MD, Servotech Power Systems Limited to learn about the sector that is helping India to shine brighter in a literal sense.
Edited excerpts below.
Q. The Indian LED lighting market reached a value of $3.58 billion in 2020. It’s expected to grow at a CAGR of 28.3% during 2021-2026. How do you see the industry being impacted by the pandemic?
The Indian Outdoor LED Lighting Market was valued at $3.58 billion in 2020, and it is expected to register a CAGR of 28.3% over the forecast period 2021-2026. The Covid-19 impact is mainly observed at the first or starting node of the market value chain, i.e., the manufacturers of lighting products. The sales of both LED electronics and lamps were impacted significantly. According to ELCOMA, around 30% of the components, namely electronic drivers, including chips used in manufacturing LED bulbs in India, are imported from Chinese vendors. The LED lighting industry has witnessed short supply owing to the pandemic.
The impact of Covid-19
On account of government initiatives to boost LED adoption and growing awareness about the lower power consumption of LED lighting products LED Market is expected to register a CAGR of 28.3% over 2021-2026. However, the current situation has changed the dynamics of the market somewhat. The global smart lighting market size is estimated to grow from $9.4 billion in 2020 and is projected to reach $24.2 billion by 2025, at a CAGR of 20.9%. This projection for 2025 is estimated to be down by 21%, as compared to the pre-Covid-19 estimation.
Global market for LED lighting is projected to recover from the current Covid-19 pandemic to reach $78.7 billion by 2027.
New installations of lights depend on new constructions, which have all slowed down due to Covid-19. Nonetheless, the healthcare sector has played a huge role in buying new LED products in the past few years. In fact, the sale of LED items has been higher in healthcare sectors, especially hospitals, during Covid-19. However, the global market for LED lighting is projected to recover from the current Covid-19 pandemic to reach $78.7 billion by 2027.
Q. How the supply chain disruption impacted the LED light manufacturing industry in India?
Supply Chain Impacts of the Covid-19 Pandemic Manufacturers described two effects of the pandemic: an initial surge in demand and shortages followed by a slowing of demand. Early in the pandemic, many manufacturing plants shut down or were forced to reduce staff and operation significantly, causing shortages in LED packages, driver components, and materials.
The impending arrival of Covid-19 also caused an initial spike in lighting product demand. As a result, manufacturers struggled to keep up and saw product mfg. delays from 4-8 weeks or more. The supply chain impacts from Covid-19 also showed the resiliency that comes from having a diversified supply chain. Single-source manufacturers were hit the hardest and struggled to stay operational.
Most LED light manufacturers saw around 30% decreases, with ranges from 10%-50% earnings losses varying by region and market sector.
As the pandemic went on, challenges shifted from supply chain issues and shortages to decreased demand and surpluses. Many manufacturers cited a decreased demand for lighting products as the greatest challenge they faced due to the pandemic. Most manufacturers saw around 30% decreases, with ranges from 10% to 50% earnings losses varying by region and market sector.
However, the pandemic has exposed most Indian firms to severe supply chain disruptions (SCDs) due to undiscovered supply chain vulnerabilities.
The study revealed that many Indian firms have experienced major disruptions in transportation and logistics services, including impact on transportation and logistics data, time delays, and cargo cancellations due to cramped freight capacity, restricted circulation, closure of ports, and slow customs clearances. This has also impacted adversely the production and transport consignments including logistics services and led to delays and rerouting to final consumers.
Q. Solar-powered product penetration in India is still at a very nascent stage, especially among domestic consumers. How do you see this scenario evolving by 2025? What are the challenges the industry is facing?
The Indian rooftop solar market is expected to grow at a CAGR of more than 25% throughout 2020-2025. Factors such as rising environmental concerns, favourable government policies, incentives and tax benefits for solar panel installation, and the high cost of grid expansion especially in rural areas are expected to be major drivers driving the market. Additionally, the advancement in technology leading to solar panel manufacturing cost reduction and an increase in efficiency has been a major factor for the growth of the Indian rooftop solar market. Lack of general awareness is likely to restrain the growth of India’s rooftop solar market in the coming years.
The industrial sector is expected to dominate the market during the forecast period, owing to factors like very high tariffs for electricity from central grids. Commercial and industrial sectors are showing a growing interest in distributed solar power generation due to various economic benefits and a constant source of energy to eliminate downtimes and equipment damage due to voltage fluctuations in conventional power grids. This has created a huge opportunity for rooftop solar in the country.
The gradual shift from energy generation from conventional sources such as coal and natural gas to clean energy is expected to help grow the rooftop solar market in the country.
Challenges in the Indian roof-top solar industry:
1. Aligning the DISCOMs and the developers – DISCOMs have a fear that if rooftop solar can grow without restrictions, they will lose some of their largest and best-paying customers. The entire electricity produced should be metered and exported to the grid.
The DISCOM should buy the rooftop solar power at their Actual Cost of Supply (ACOS = APPC + T&D costs) and continue to supply electricity as usual to the customer at its regular tariff. Unlike the current scenario where the entire benefit of rooftop solar was going to the rooftop owner at the cost of the DISCOM, this will ensure an equitable distribution of the savings between the DISCOM and the rooftop owner.
2. Removing restrictions on the RESCO model and capacity caps by states – Some states have restricted the RESCO model on the rooftop, while some have put a restriction on the size of the plant that can be installed at a consumer’s facility. The rationale varies from state to state.
- It is recommended that all caps and restrictions on rooftop solar be based purely on technical issues. Individual consumers should be allowed to set up rooftop solar plants up to their contract demand, and the total capacity in a distribution area should be capped basis of the substation technical capacity.
- All restrictions on Rooftop solar plants based on ownership should be removed. The policy should encourage the growth of the RESCO model in the rooftop segment, just as it has in the case of the utility segment. Moreover, RESCOs will be able to provide better capital efficiency owing to their expertise in the solar domain.
3. Bringing uniformity in Statutory Approvals – Statutory approvals vary from state to state. Even within a state, the process of obtaining these approvals is not standardized. Nodal agencies also impose additional clearances not specified in the state’s solar policy. Finally, there are no defined timelines for the granting of approvals by the various agencies involved, leading to delays and losses, especially where net metering is involved.
Approvals should be standardized, clear timelines should be defined and adhered to.
4. Aiding Financing for rooftop solar projects – Financing continues to be a challenge, especially for smaller consumers or those with lower credit credentials. Also, a large portion of the credit facility for rooftop solar lies undeployed with the banks. A credit guarantee scheme should be created to mitigate risk for customers with lower credit ratings. This will enable such consumers to avail bank financing for their rooftop solar projects, and also enable developers to offer such consumers the RESCO model, as the inherent credit risk issue will be taken care of.
5. Avoiding frequent policy revisions – The Solar Policy issued by the SERCs undergoes extremely frequent changes and revisions. Such frequent revisions de-stabilize the sector and hinder its growth. It is recommended that revisions are not done so frequently. More importantly, all changes to existing policy should be applied only prospectively and should not apply to existing projects.
Q. With the government’s focus on the Atmnirbhar Bharat campaign, how it is benefitting the growth of the LED lighting industry and solar product industry in India?
On May 12, 2020, Prime Minister Narendra Modi announced the Atmanirbhar Bharat Abhiyan intending to make the country independent of the global supply chain. Emerging from the shadows of the ‘Make in India’ initiative, ‘Atmanirbhar’ (or self-reliance) caught the imagination of Indian enterprises and has given them the much-needed fillip to converge on a renewed narrative for change.
For the manufacturing sector to grow in double digits on a sustained basis, manufacturing companies need to become an integral part of global supply chains, by possessing core competence and cutting-edge technology. Accordingly, PLI schemes to create manufacturing global champions for an AtmaNirbhar Bharat have been announced for 13 sectors including manufacturing of “Energy Efficient LEDs” and ‘High-Efficiency Solar PV Modules’.
The government has committed nearly Rs 1.97 lakh crores, over 5 years starting FY2021-22 including Rs 4,500 crores for Solar PV Modules’ which will be will be implemented by the Ministry of New & Renewable Energy (MNRE). It will help bring scale and size in Solar PV manufacturing, create and nurture global champions and provide jobs to youth. The PLI schemes will incentivize new Gigawatt (GW) scale solar PV manufacturing facilities in India. The EFC meeting for formulating a scheme in this regard has already been held. It will now be taken to the Cabinet for final approval. The scheme will reward the efficiency of solar modules as well as local value addition.
As part of the Paris Climate Agreement, India has committed to install 40% of its electricity generation capacity from non-fossil fuels by 2030. For achieving this goal, India has set an ambitious target of setting up 1,75,000 MW of renewable energy capacity, including 1,00,000 MW of solar power, by 2022. Further, a target of 4,50,000 MW installed RE capacity by 2030 has also been fixed.
Similarly, AtmaNirbhar Bharat Scheme has greatly benefitted the LED manufacturing industry as evident in the following
- The LED penetration for outdoor applications in India has been continuously increasing. According to Goldman Sachs estimates, the LED penetration rate in the lighting market had crossed 60%, by 2020. Further, government initiatives aimed at structuring regulations for encouraging LED adoption are also fuelling the market growth. For instance, the Indian government aims to replace 14 million streetlights, across the country, with intelligent lighting control systems.
- Further, several government initiatives have been favouring the growth of LED systems in the lighting infrastructure of India. For example, Street Lighting National Programme (SLNP) and UnnatJyoti by Affordable LEDs for All (UJALA) are the government of India’s zero-subsidy LED initiatives, which had completed five years in 2020.
- Various smart city initiatives are being undertaken in the country. They are viewing smart street lighting as an ideal starting point that provides energy savings and operational savings.
- Additionally, the country is expected to observe a reduction of about 15%-32% of its energy usage by 2025 by deploying LED lighting systems. In the process, LED lighting could witness increased adoption. Replacement of antiquated process equipment and others is expected to foster energy cost reductions further in the country.