By Khushboo Goyal
India’s solar manufacturing capabilities are significantly lower as compared to that of China. Moreover, much of the manufacturing is concentrated on solar modules, which are the final products. Very limited capacity exists on the solar cell side, while for polysilicon, wafers and ingots it is negligible. Thus, the solar industry depends on large volumes of imports, for both modules and upstream products, from China and various Southeast Asian countries with free trade agreements.
Of late however, a host of policy interventions have been made to curb imports and increase domestic production capabilities. The private sector is capitalising on these, as is evident from the massive influx of module capacity in a span of just two years. India’s solar module manufacturing capacity has grown at a rapid pace, from barely 10 GW in 2020-21 to more than 60 GW of annual capacity as of end-2023, according to the All India Solar Manufacturers’ Association. The technology has also evolved during this period and has advanced from predominantly low-capacity polysilicon to higher wattage technologies such as mono PERC, TOPCon and heterojunction modules.
Further, the domestic solar module market has expanded, with over 100 players catering to the local as well as the export requirements in some cases. Moreover, there has been adequate focus on backward integration, with domestic players also setting up production capacities for cells, ingots, wafers and even polysilicon. However, as with any other infrastructure sector, not all policies have been met favourably by all stakeholders and it will take some time for the market to stabilise.
Taxes and duties
In March 2021, a basic customs duty (BCD) of 25 per cent on solar cell imports and 40 per cent on solar module imports was announced and this duty came into effect from April 1, 2022. The intent of this tariff barrier was to make imported solar cells and modules more expensive and make the case stronger for domestic products. Interestingly, there was no sunset period announced for these duties. A key concern raised at the time of implementation of BCD was that the duty could have been announced in phases with a clear sunset period, for providing better visibility to both developers and manufacturers. Further, with limited cell capacity in India, large volumes of cells are imported at prices with duties, thereby increasing the overall cost of solar power. Many stakeholders also believe that as the government’s intent is to increase renewables’ deployment, the goods and services tax in this sector should be reduced to 5 per cent to promote greater uptake.
Incentives for manufacturing
The government launched a production-linked incentive (PLI) scheme to encourage setting up of large capacities of solar manufacturing facilities producing advanced technologies. With the absence of sizeable integrated manufacturing facilities that can sufficiently meet the country’s solar targets for this decade, a base needs to be set up for polysilicon, ingots, wafers and cells from scratch. The PLI scheme, launched in April 2021, aims to select manufacturers through a competitive bidding process and then award them sanctioned incentives for a period of five years from the date of commissioning of the project. In order to build self-reliance, the PLI scheme gives more weightage to fully integrated facilities from polysilicon to modules.
Tos date, two tranches of successful PLI auctions have been conducted, resulting in allocation of 48,337 MW of solar manufacturing capacity, with a cumulative support estimated at Rs 185 billion. The first tranche, conducted by IREDA in 2021, allocated 8,737 MW to three bidders – Adani Infrastructure, Reliance New Energy and Shirdi Sai Electricals. The Solar Energy Corporation of India Limited conducted a bigger second tranche in 2023, resulting in allocation of a total of 39,600 MW of domestic manufacturing capacity to 11 companies – Indosol Solar, Reliance New Solar Energy, FS India Solar Ventures, Waaree Energies, Avaada Ventures, ReNew Solar, JSW Renewable Technologies, Grew Energy, Vikram Solar, AMPIN Solar One and TP Solar. While it will take a few years for this entire capacity to come online, this huge capacity expansion will significantly add to the country’s efforts in securing its solar supply chains and becoming self-reliable to some extent in the future.
Approval for solar modules
The Approved List of Models and Manufacturers (ALMM) has perhaps been the most debated policy measure in the solar industry. It lists eligible models and manufacturers of solar modules complying with the Bureau of Indian Standards, and only products that are listed can be used for solar projects set up for government agencies, under government schemes, for power sale to government agencies and also for open access and net metering projects. The move to make ALMM compliance mandatory for open access projects was not well received as these projects do not get government subsidies or support, and thus, should be free from ALMM limitations.
Interestingly, the first ALMM list was notified in March 2021 and has gone through a round of updates, the latest one being in April 2024. This recent update adds an additional 4,104 MW of solar module capacity to ALMM, bringing the cumulative manufacturing capacity of modules enlisted under ALMM to 41,333 MW. As expected, all the 82 companies mentioned in this latest update have their facilities in India with no imported manufacturer featured here, thereby effectively restricting imports of modules. However, the approved list for cells is yet to be released; so modules made of imported solar cells can still be used.
There has been a lot of back and forth in recent months regarding the implication of ALMM. First, the Ministry of New and Renewable Energy (MNRE) announced an abeyance of one year on ALMM implication in March 2023, thereby, exempting all solar projects commissioned by March 2024. This order was expected to provide relief to solar developers to source imported modules and boost capacity addition. Many in the industry had hoped that ALMM would be extended for another year. However, on February 9, 2024, MNRE announced the reimposition of ALMM for solar PV modules from April 1, 2024, with certain exemptions. These exemptions would be applicable to open access and captive power projects and also for projects at advanced stages of construction, plus for orders placed before March 31, 2024.
However, in a complete turnabout just a week later, MNRE put ALMM in abeyance again till further notice, creating a lot of confusion in the entire solar industry. Much to the surprise of stakeholders, in March 2024, MNRE finally notified that ALMM has been reinstated with effect from April 1, 2024 and no exemptions have been announced. Only those cases will be reviewed where solar modules have been delivered to the project site by March 31, 2024, but have not been commissioned by that date due to circumstances beyond the control of the project developer.
Thus, while ALMM has finally been implemented, this policy uncertainty of the past few months is not a good signal for long-term investors in such large capital-intensive solar projects. For developers, this ambiguity creates confusion regarding planning of equipment sourcing and for manufacturers, it impacts their expansion plans as well as projected order books. It is important to have a clear policy structure in place for India’s solar manufacturing industry to grow, with both domestic and export orders.
Outlook
Barring a few policy flipflops, the overall progress in India’s domestic solar manufacturing industry has been quite encouraging with significant investments announced and capacity being set up. Going forward, restrictive policy interventions to promote domestic manufacturing should be avoided as they can put a dent in the country’s aim to add more than 250 GW of new solar project capacity by the end of this decade.
