Building Capacity

Plans for vertical integration of domestic PV manufacturing

Jyoti Gulia, Founder, JMK Research
Akhil Thayillam, Senior Research Associate, JMK Research
Vibhuti Garg, Economist and Lead India, IEEFA

Solar photovoltaic (PV) manufacturing in India is on the cusp of a major enhancement. The industry is transforming rapidly thanks to technology upgrades and expanding domestic capacity.

Two fundamental factors are driving the local PV industry. First, domestic preference for PV modules has shifted from the obsolete multicrystalline silicon (multi-Si) to the monocrystalline (mono-Si) type, the current “workhorse”, among all PV tech- nologies. However, multi-Si modules still account for roughly two-thirds of the existing domestic PV manufacturing capacity. Second, of India’s total 18 GW module manufacturing capacity, less than 50 per cent is operational at any given time. The cu- mulative cell manufacturing capacity has reached about 4 GW. Further, India lacks the initial stages of PV manufacturing, that is, polysilicon-to-ingot, ingot-to-wafer and wafer-to-cell. Without economies of scale and vertical integration of domestic PV ma- nufacturing, India-made modules are more expensive than imported ones.

The annual demand for high efficiency modules in India in the medium term (the next three to five years) is expected to reach 15-20 GW. Eyeing the potential demand, many companies are building or planning at-scale vertically integrated production capacities for high efficiency modules. Major manufacturers planning to expand or enter the market are seeking to install machinery that can handle cell sizes of up to M12 (210 mm x 210 mm), in both monofacial and bifacial configurations. To encourage local PV manufacturing, the Government of India has provided incentives, direct and indirect, such as the production-linked incentive (PLI) scheme for integrated manufacturing of high efficiency solar PV modules, the domestic content requirement scheme, basic customs duty on imports, and the approved list of models and manufacturers.

Module price volatility is a critical issue for solar project developers. To mitigate this issue, it is imperative to increase the domes- tic manufacturing capacity for high efficiency modules. Significant capacities in polysilicon and wafers will not only protect do- mestic module manufacturers from international supply chain fluctuations to some extent, but will also enable a reduction in raw material prices in the domestic market.

Developing significant manufacturing capacities for raw materials, especially polysilicon, will be highly capital intensive and technologically complex, but also necessary. In the coming years, domestic manufacturers are expected to become more cost competitive, enabling solar project developers to lower costs. To encourage vertically integrated facilities, the government provided an initial financial outlay of Rs 45 billion ($616 million), which was increased by an additional Rs 195 billion ($2.5 billion) under the PLI scheme to produce high efficiency solar modules.

At present, the government is trying to attract investments in solar manufacturing by subsidising capital expenditure. There should, however, also be a strong emphasis on operational expenditure support. Apart from financial incentives, any new player looking to enter the market must be assured that the solar fabrication facility will operate smoothly, with dedicated electricity and water supply. Collective stakeholder engagement is also needed to address the abiding challenges of high manufacturing expenses, inadequate research and development, and shortage of skilled manpower.

Tariff and non-tariff barriers for cheaper imported modules are necessary to a certain extent. However, boosting either demand- or supply-side growth of the domestic solar market should not be at the expense of the other. Several new players in solar manufacturing are looking to build an integrated facility to produce all PV value chain components, from polysilicon to solar modules. Among those looking at wafer manufacturing are big private Indian conglomerates such as Reliance and Jindal, as well as one of the world’s biggest coal companies, Coal India Limited. Recent acquisitions by Reliance of companies such as NexWafe (a wafer manufacturer), REC Solar Holdings (solar module manufacturer) and a 40 per cent stake in Sterling and Wilson Solar Limited illustrate its intent to be a market leader in renewables in the long term.

Announcements in the past year by industry leaders or those exploring the sector indicate solar manufacturing will be a key area of domestic growth. The government needs to support this momentum by providing a favourable policy and regulatory environment, and minimising legal and financial risks. Developers and investors will gain confidence and India can continue to grow in the PV manufacturing space.

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