By Sujoy Ghosh, Vice President and Country Managing Director – India, First Solar
To attain its net zero goals, India needs to install 5,630 GW of solar energy capacity by 2070, as per the Council on Energy, Environment and Water (CEEW) report of 2021. This will equate to an annual installation of 150 GW of solar energy capacity in the country, which is five times the current rate of 25 GW per annum that India targets to install in calendar year 2024. Planning for such a ramp-up of solar energy installations cannot be delinked from the need to build resilient manufacturing supply chains. Sole reliance on China’s monopolistic supply chain is a strategy that can not only jeopardise the energy security objectives but also undermine the economic security of the country if all of the technology manufacturing to support this transition is outsourced. Post-Covid, a lot of the major economies that are driving clean energy technology demand (such as India, the US and now Australia) are focusing on building the resiliency to protect their long-term energy and economic interests.
As per the International Energy Agency’s 2023 report on solar PV global supply chains:
- Concentration of solar PV supply chains brings vulnerabilities, posing potential challenges for the energy transition. Diversification can reduce such supply chain vulnerabilities, and offer economic and environmental opportunities
- New solar PV manufacturing facilities along the supply chain could attract $120 billion investment by 2030. The solar PV industry could create 1,300 manufacturing jobs for each GW of production capacity
Specifically for India, as we transition into the world’s third-largest economy by the end of the decade, the share of manufacturing in our GDP is targeted to increase from the current 17 per cent (2023) to at least 25 per cent. Clean energy transition and decarbonisation being one of the largest economic opportunities in the country – it is natural that the energy policies are linked with industrial and trade policies to develop the domestic ecosystem and supply chain.
The rapid acceleration of module production demonstrates that private sector capital and capability are available as long as the signal for a stable policy regime is clear to the investors.
The how: Policy environment in solar manufacturing space
Derisking of investments in manufacturing is critical in any segment but more so in the solar PV segment given that China today has four times the manufacturing capacity of solar PV as compared to its domestic needs, and the consequent overcapacity triggers a deflationary trend in foreign markets that undermine the domestic industry. The Indian government came up with a good policy framework at the beginning of 2019, it was followed by a slew of tariff and non-tariff barriers to restrict imports as well as incentives such as lower corporate tax rates/capital subsidies and production-linked incentives PLIs for attracting investments in manufacturing.
However, we have lost five years primarily due to frequent flip-flops on the implementation of these policies by allowing phased unrestricted import of modules and cells. For instance, in March 2023, the solar PLI scheme attracted investments of over Rs 1 trillion to establish 48 GW of fully integrated semiconductor-to-module production facilities, the import restrictions were simultaneously withdrawn. The consequence of this was that imports of cells and modules rose by over 89 per cent from the year before and India accounted for over 50 per cent of the exports from China in this segment. Investment commitments were deferred resulting in delays under the PLI scheme, whereas we spent over Rs 42 billion of foreign exchange to import the modules and cells from China.
The way forward
The reimposition of the ALMM on modules since April 2024 has resulted in a significant scale-up of module production with over 67 GW of installed production capacity present in the country currently. The rapid acceleration of module production demonstrates that private sector capital and capability are available as long as the signal for a stable policy regime is clear to the investors.
However, module production is more of an assembly operation with most of the components (cells, glass, frames, etc.) being imported. To achieve true self-reliance, the capability to rapidly backward integrate into cells domestically is very important. Cell production enables control of the core technology in the PV module as this is the part of the value chain where the majority of the innovation is played out. Further local cell production creates a demand for wafers and ingots (and hence creates demand for the upstream production to transition to India).
Hence, the imposition of has ALMM on cells (which was envisaged in 2019) needs to be announced with immediate effect (on bids being placed for new capacity) with an enforcement timeline in the next 12 months. There is 10 GW of active cell production today, and over 30 GW of cell capacity is in construction. The ALMM cell notification can trigger the rapid ramp-up of domestic cell capacity to meet the domestic needs. Simultaneously, a forward-looking trajectory on import restrictions on wafers/ingots needs to be announced to enable PLI investors engaged in wafer production to raise capital and start the construction of their projects.
In parallel, there needs to be a mission-mode focus on two tracks:
- Strengthening the domestic capital equipment ecosystem, especially for cell and module production – incentives to module/cell producers need to be linked with localising the equipment ecosystem. This is critical for long-term sustainability of the solar PV segment as technology changes drive modification/replacement in capital goods
- Academia-led projects to develop next-generation cell technology especially tandem junction devices that will perhaps be the mainstay of the PV technology in the next decade. Government guarantees/risk funding the academia on the initial technology cycle (technology readiness level (TRL) 4-7) is crucial if the industry commits to fund the innovation for the subsequent TRLs. Learning from successful models of academia-industry connect in the US and China, and implementing those frameworks in India now will reap benefits as we transition to the next decade in terms of new breakthrough technologies in the PV segment.
Sole reliance on China’s monopolistic supply chain is a strategy that can not only jeopardise the energy security objectives but also undermine the economic security of the country if all of the technology manufacturing to support this transition is outsourced.
In sum, the need of the hour is to bolster the domestic supply chain in the solar segment over the next two-three decades. We have the policy framework, the domestic capabilities and the capital available to make this happen. There is a five-seven-year time window required for the supply chain to transition, mature and scale up (which is true for any segment). The beginning by localising module production in 2024 has been a great start. The momentum needs to be maintained to replicate the success in solar cells and further upstream components over the next three years. All we need during this time period is a stable policy framework that allows these investments to mature.
