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Pros and Cons of Using Local Content

for Renewable Projects

 

STUDENT PAPER

By Sumit K. Chauhan

SKEMA Business School

Lille, France

 



ABSTRACT

Renewable projects are picking up pace around the world, in developed as well as developing countries. In such projects, developing countries are imposing local content sourcing requirements to protect their markets in the short term and advance their markets for supporting the growth in long term while it has been continuously opposed by developed countries by being cited as a violation of the free trade practices of WTO. Therefore, this paper is developed to analyze the issue of local content requirements (LCR) and uses multi attribute decision making to compare different alternatives such as 0% LCR, <50% LCR, >50% LCR and 100% LCR. Based on this analysis, the author will reach a conclusion on which alternative will serve the best for a nation keeping in mind the short-term benefits as well as long-term effects of adopting such a policy.

Keywords: Indo-US Solar Dispute, Renewable Energy, Local Content Requirements (LCR), Environmental Exceptions, World Trade Organization, Free Trade Issues, Paris Climate Agreement.

INTRODUCTION

The world has been dependent upon fossil fuels for a long time for producing electricity. But now renewable sources of energy have been picking up for electricity production and investment in all countries is flowing in this sector. Earlier many, developing and under developed, countries have been largely dependent upon fossil fuels for electricity generation, given the high initial investment and cost of producing electricity through renewable sources of energy. But nowadays, given that cost of producing energy through renewable sources is decreasing and becoming more viable, countries are moving towards renewables.

A case in point is India which had set ambitious target of achieving 57% of total electricity capacity to come from non-fossil fuel sources by 2027. But an underdeveloped solar market in its home country has led to increasing reliance on foreign market for buying solar products. This led to high costs of buying in short term as well as long term. Therefore, to build a domestic market and reduce its reliance on imports, India has put domestic content requirements (DCR) restrictions in renewable projects. This will boost the local market and therefore support the government in long term, if not the short term, and achieve its objective of reducing emissions in a quick and inexpensive manner. However, this support for local market is viewed by US as giving undue advantage to home players and has been cited as a violation of free trade law of WTO which can impact India in terms of loss of trade and foreign investment in other sectors.

This raises the question of whether the underdeveloped countries should use such restrictions to develop local markets or should they avoid such actions to not lose out in other areas due to trade restrictions. Therefore, this paper seeks to analyze the impact of domestic content requirements (DCR) in renewable projects and the extent to which a country should use such restrictions.

METHODOLOGY

STEP 1:  To analyze the percentage of local content requirement that would best serve a nation, Multi Attribute Decision Making (MADM) has been used. Since the attributes are quite subjective this analysis method would be the best to use. We plan to compare the local content requirement ranging from 0% to 100% divided into four scenarios. By using the MADM methods, we will able to find out the best option for enforcing local content requirements in renewable projects.

More…

To read entire paper, click here

 

Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director [email protected].

How to cite this paper: Chauhan, S. K. (2018). Pros and Cons of Using Local Content for Renewable Projects, PM World Journal, Vol. VII, Issue XII (December).  Available online at https://pmworldjournal.net/wp-content/uploads/2018/12/pmwj77-Dec2018-Chauhan-local-content-for-renewable-projects.pdf



About the Author


Sumit Kumar Chauhan      

Calcutta, India

 

 

Sumit Kumar Chauhan is an MBA student in Indian Institute of Management Calcutta, India. He graduated from Delhi College of Engineering, India and holds a bachelor’s degree in Computer Engineering. He has worked for a total of 3 years in SAP Labs as an Associate Developer and in ZS Associates as a Business Analyst. He studied in France on a student exchange program and can be contacted at [email protected].