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The short-term costs of local content requirements in the Indian solar auctions

: Probst, Benedict; Anatolitis, Vasilios; Kontoleon, Andreas; Anadón, Laura D.


Nature energy 5 (2020), No.11, pp.842-850
ISSN: 2058-7546
European Commission EC
H2020; 730403; INNOPATHS
Innovation pathways, strategies and policies for the Low-Carbon Transition in Europe
Journal Article
Fraunhofer ISI ()
climate change policy; energy and society; environmental economics

Developing and emerging economies are implementing local content requirements to spur domestic manufacturing, though their costs and benefits are not well understood and difficult to quantify. Here, we provide an empirical assessment of the short-term costs of local content requirements using a credible counterfactual. We analyse data on government-run solar photovoltaic auctions held in India between 2014 and 2017 and exploit the fact that not all of the auctioned contracts entailed local content requirements. We find that local content requirement policies resulted in a ~6% per kWh increase in the cost of solar photovoltaic power generated from those projects when compared to similar projects not subject to the same local content requirement policy. During this three-year time period, Indian solar panels remained around 14% more expensive than international panels. We found some evidence of short-term increases in domestic manufacturing capacity, yet during this short period Indian firms did not increase market share or break into export markets.