Sun may shine on solar module production | India

ANDIndia’s ambitious target of achieving 500 GW of renewable energy capacity by 2030, of which 280 GW would come solely from solar, is a challenge. As of April 2024, installed solar capacity stood at 82.63 GW, which would require an additional annual capacity of around 33 GW to achieve the target. While the government aims to achieve this target through domestic production, India’s energy transformation in solar has been heavily dependent on imported solar cells and modules, particularly from China. Over 80% of the 38 GW of growth in solar generation over the past four years has been imported, highlighting a significant gap between domestic capacity and the 2030 target.

Despite government initiatives – such as the imposition of Basic Customs Duty (BCD) to curb imports, Production Linked Incentives (PLI) to boost domestic manufacturing capacity, and the duty deferral scheme under the Manufacturing and Other Warehouse Operations Regulations, 2019 to free up working capital reserves – Indian module manufacturers have not been able to compete with Chinese companies in terms of cost and scale. China dominates the entire manufacturing spectrum, from raw materials including polysilicon, wafers and ingots to finished products such as cells and modules. This dependence on imported critical raw materials has exposed domestic manufacturers to price volatility and disruptions in the global supply chain.

Solar cell production capacity of around 6 GW compared to 50 GW of module production capacity in February 2024 has further exacerbated the problem. Module manufacturers have had to import cells at 25% BCD. This has increased costs and made the products less competitive than Chinese counterparts. This underscores the urgent need for India to strengthen backward integration of module production capacity.

To strengthen the country’s module manufacturing ecosystem, the government introduced the PLI scheme in two tranches in April 2021 and September 2022, with a total capital outlay of INR 240 billion (USD 2.9 billion). This encouraged investors to set up integrated polysilicon module manufacturing facilities by offering financial incentives based on factors such as module sales and local (domestic) value addition. With these supportive policies, India’s nameplate module manufacturing capacity more than doubled from 18 GW in March 2022 to 38 GW in March 2023. Despite initial headwinds, 2024 was a positive year, with 500 MW of module capacity commissioned. The government expects 7.4 GW to be commissioned by October 2024, 16.8 GW by April 2025 and 15.4 GW by April 2026.

While the PLI scheme promises long-term competitiveness against Chinese modules, the Approved Model and Manufacturer List (ALMM) provided immediate support to domestic manufacturers. By requiring ALMM-compliant modules for government agency solar projects and open access and net metering projects, the ALMM created a trade barrier for imported modules as all entities in the ALMM, except one, are Indian. However, the implementation led to a policy reversal and the ALMM controversy over open access and net metering projects was finally resolved in March 2024, while for government projects it was ended in May this year. Such policy uncertainty affected all stakeholders. Solar developers struggled to find equipment, investors became wary of long-term commitments in an unpredictable environment, and manufacturers found their expansion plans and order books affected. Policy stability must be the priority.

Initiatives like ALMM and PLI have given a much-needed boost to solar manufacturing capacity. However, a key vulnerability remains. The machinery used to manufacture modules is entirely imported from China. Breakdowns and routine maintenance make domestic manufacturers dependent on Chinese suppliers of spare parts and support. It is essential to bridge this technology gap and become fully self-reliant. Encouraging R&D and creating synergies between industry and academia is key.

Achieving 500 GW of renewable capacity through domestic production alone in the short term may be difficult, but self-sufficiency in this sector is key to a sustainable future. Strategic solutions that ensure a robust domestic solar ecosystem will position the domestic manufacturing industry to lead the global renewable energy landscape.

Niharika Puri is a partner and Mayank Udhwani is a senior associate at Trilegal