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Reliance’s new sunrise

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Reliance Industries' new energy ambition is transformational and audacious, yet not unachievable.

Reliance’s new sunrise
Reliance has never lacked ambition. And its new energy and new materials plan unveiled at its annual general meeting on Thursday, while shocking in its audacity is not lacking in its believability. Executing mega-scale projects efficiently, economically, and swiftly is its core DNA.
Over the years, many doubted Reliance’s ability to make forays into customer-facing businesses successful. And while there may still be some naysayers, most grudgingly admit that the behemoth has cracked the secret recipe with Jio and Reliance Retail. But what a few doubt is Reliance’s capability to execute at mega-scale — be it the world’s largest single-location refinery or more recently India’s largest single location medical grade oxygen facility.
This is what makes its new energy and materials game-plan tough to question. The question, however, is not, “Can it build mega-scale facilities?” The question is: “Can it be globally cost-competitive to take on China?”
Here it is important to understand the lay of the land. Let’s take solar—I borrow liberally for this from a report of January 2021 by JMK and IEEFA. Fathom this: China accounted for over 70 percent of the world’s solar module production with a capacity of 106GW in 2019. “It is also a leading producer of the silicon wafer with a 97.4 percent share of the global market, PV cells with a 79 percent share and polysilicon with a 67 percent share.” What’s more, China is constantly upgrading and expanding its capacity, which has grown from just 10GW in 2010.
Now, let’s see how India is placed. We have a module producing capacity of 5GW, but our solar cell capacity is only 3GW. Besides, these cells are of low quality and expensive due to the lack of scale of producers. Module capacity utilization is also just 40-45 percent because most capacities are small and unviable (of 200-500MW). Even the average capacity is 0.5-1GW compared to 3-5GW in China.
So, India has a problem of both scale and backward integration. This seems to explain why Reliance is looking at not just building a solar facility, but also its entire supporting ecosystem at Jamnagar. No Indian player will be able to compete with a Chinese producer if it needs to import inputs from China.
Also, to compete with China you need a scale that’s not just at par, but one that’s even more dominating. And this is what few companies in India can do, other than Reliance. Given the critical nature of its endeavour, one would expect the Government will support its ambition with the right incentives, to take the fight to the market.
But as things stand, Reliance has clearly thrown down the gauntlet. And it is likely betting on support from many of its investors and partners. The ball is now in China’s court. Can it stop the Indian juggernaut?
My hunch is, it will be a hard-fought battle that will likely end with grudging co-existence in a rapidly expanding marketplace.
But what the future truly holds, only time will tell. I’m just excited as an observer to witness this upcoming contest in the world’s sunrise sector.

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