India has ambitious plans in the renewable energy space, especially in the solar sector, and targets 280 GW of solar capacity by 2030. To ensure that these targets are met in a sustainable manner without putting pressure on investors and keeping geopolitical conflicts in consideration, the government has been proactive in promoting the domestic manufacturing of solar components. Several policy initiatives have been announced; however, industry stakeholders still face several challenges in domestic manufacturing.
Policy initiatives
To bolster domestic solar manufacturing and reduce India’s dependence on imports, the government has put several tariff (basic customs duties [BCD]) and non-tariff barriers (Approved List of Models and Manufacturers [ALMM] and domestic content requirement [DCR]) and has introduced the production-linked incentive (PLI) scheme.
Under the first tranche of the PLI scheme, the government allocated Rs 45 billion to boost domestic solar manufacturing, aiming for a capacity of 10 GW. The tranche received an overwhelming response, with bidders quoting a total capacity of 54.8 GW.
The positive response in the first tranche led to the allocation of a total outlay of Rs 140 billion and a targeted capacity of 39,600 MW for the second tranche. The scheme will be implemented in three phases: 7,400 MW by October 2024, 16,800 MW by April 2025 and the final 15,400 MW by April 2026. The scheme is expected to attract an investment of Rs 930 billion, further driving growth and development in the solar manufacturing sector.
A key non-tariff barrier has been the ALMM. The Ministry of New and Renewable Energy (MNRE) initially announced the first list of the ALMM in March 2021. However, it was put in abeyance in March 2023, allowing all solar projects commissioned by March 2024 to avoid compliance with the ALMM. However, on February 9, 2024, the government reinstated the ALMM for solar PV modules, effective from April 1, 2024, with exemptions for open access and captive power projects at advanced stages of construction, as well as those that have placed orders for solar modules before March 31, 2024. Additionally, on February 15, 2024, the MNRE completely reversed its policy and put the ALMM in abeyance again until further notice. Ultimately, these orders have been cencelled and now the ALMM is in place. Domestic manufacturers consider these flip-flops detrimental to their expansion plans, especially for those that have not entered into strong export contracts.
The government has also imposed a BCD of 25 per cent on solar cell imports and 40 per cent on solar module imports since April 1, 2022, providing more support for domestic manufacturers.
With these measures, India’s solar module manufacturing capacity experienced a remarkable surge over the past two years, growing from approximately 10 GW in 2020-21 to over 60 GW (comprising high wattage and technologically advanced mono perc, TOPCon and HJT modules) by the end of 2023 according to the All India Solar Manufacturers’ Association. The increased capacity also led to a significant increase in exports, with Indian solar manufacturers exporting around 3,900 MW of solar modules in 2023. This growth has facilitated backward integration, ensuring a reliable supply chain for domestic solar installations, which are expected to reach 30 GW per annum.
Risks and challenges
Despite the numerous policy measures implemented to boost the Indian solar manufacturing industry, several challenges persist, hindering sustained growth and global competitiveness of solar components manufactured in India.
Firstly, while the country’s domestic capacity of solar modules is increasing substantially, the capacity of other solar components is not. There is limited capacity of solar cells, while for polysilicon, wafers and ingots, the domestic capacity is negligible or non-existent.
Consequently, the solar industry depends on large volumes of imports, for both modules and upstream products, from China and various Southeast Asian countries based on free trade agreements. As per data from the MNRE, till September 2023, India has imported solar modules worth around Rs 94,908 million.
This leaves India vulnerable to various supply chain shocks, which can ultimately result in challenges for the country’s solar deployment targets as the global demand for solar products scales up.
Other challenges include the lack of access to affordable technology and equipment for mining and processing critical minerals, as well as raw materials required for solar cell and module production. This reliance on foreign technology results in Indian products being outdated and unable to compete in the global market, as they lag behind global advancements by three to five years.
On the policy front, the inconsistancies on the ALMM has created confusion. Regarding the PLI scheme, it remains doubtful whether domestic manufacturing will be able to match Chinese products in terms of costs. China’s manufacturing base grew with substantial government incentives and efficient logistics operations. It manufactured products using cheap and reliable electricity. This is not the case in India, where manufacturers face high grid tariffs and unstable power supply, which adversely impact their operations.
While domestic manufacturers applaud the imposition of BCD, import duties (and earlier safeguard duties) have become a major pain point for developers, who find imported modules not only cheaper but also of better quality.
The government has also mandated a DCR of over 36 GW of solar cells and modules through the Central Public Sector Undertaking Scheme Phase II, Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan Yojana and Grid-Connected Rooftop Solar Programme Phase II. A key concern of this policy has been the slow progress towards the target and limited participation of CPSUs.
Other challenges include land acquisition, grid integration, quality control, shortage of skilled manpower, price volatility of raw materials, trade disputes and tariffs, supply chain disruptions, policy and regulatory uncertainty, access to financing and capital market demand, and price competitiveness.
The way forward
The increasing adoption of solar energy across agricultural, commercial, residential and other diverse sectors offers a significant market opportunity for PV cell and module manufacturers. This positions India as an attractive destination for solar manufacturing investments. Keeping this market opportunity in mind, and aided by government initiatives, several domestic and foreign manufacturers have announced ambitious expansion plans in this space.
Module and cell manufacturing capacity is expected to rise to 150 GW and 100 GW respectively by 2028, while the overall solar supply chain (comprising modules, cells, wafers, ingots and polysilicon) is expected to reach 400 GW by 2028, as per the Indian Solar Market 2023 report released by the National Solar Energy Federation of India. Meanwhile, according to the Institute for Energy Economics and Financial Analysis, India’s cumulative PV module manufacturing capacity is projected to reach 110 GW by 2026.
To achieve these projections, several factors need to be considered. One, the availability of critical raw materials, technology development/acquisition, infrastructure and skilling for complex production processes will play a crucial role in this expansion. Two, India needs to strengthen its upstream supply chain to build a robust and integrated solar PV manufacturing ecosystem sector to meet both the growing domestic and global PV demand. Three, to boost domestic solar manufacturing capacity and reduce reliance on imports, the MNRE should consider incorporating ancillary components in future PLI schemes and provide electricity to manufacturers at a subsidised rate. This could be a significant game changer for reducing the cost of solar modules. Four, it is imperative for manufacturers to continually invest in research and development and innovate to keep pace with technological advancements. Additionally, companies should strive to adopt vertical integration, establishing end-to-end capabilities that span the entire value chain to reduce imports, enhance cost-effectiveness and quality control, and ensure supply chain resilience.
Going forward, as India aims for self-reliance in solar manufacturing, it should focus on developing globally competitive products, expanding its global presence and positioning itself as a reliable alternative for markets seeking to diversify supply chains and build resilience against global disruptions. To maintain investor confidence and drive sustained growth, the government must ensure a stable and predictable policy environment.
With the appropriate support and policy measures, India can attain self-reliance in solar manufacturing and aggressively target export markets as well – a trend already being witnessed in India. However, in order to achieve these goals, it is important that the challenges are addressed in a timely manner.
