Addressing India’s solar PV import dependence: A research report by TPCI

Virat Bahri, Asjad Husain & Mohd Danish | September 1, 2023

While India is missing quite a few pieces in its vision for becoming a solar PV manufacturing hub, recent reports suggest that the scenario could change very rapidly, especially with new capacities coming up as a result of the solar PLI scheme.

In cognisance of these developments, the TPCI research team initiated a deep dive into the value chain of the solar energy sector, with a special focus on solar PV. The report endeavours to provide a comprehensive understanding of India’s current import dependence, export trends and prospects in the coming years. The team further engaged with industry members to understand the major challenges and suggestions for strengthening India’s solar PV manufacturing capabilities and capitalising on the recent surge in exports.

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India benefits from clear and sunny weather for a substantial portion of the year, lasting from 250 to 300 days. This extensive exposure to sunlight translates to an estimated 5,000 Tn Kilo Watt Hour (kWh) of energy annually across the country’s land area. In many regions, the daily solar energy received ranges from 4 to 7 kWh per square meter. If India were to tap into even a portion of this immense solar potential, it could easily surpass the nation’s energy requirements.

Solar power equipment trade plays a vital role in meeting the rising demand for solar energy installations. These trade activities involve the manufacturing, import, export, and distribution of various components and systems used in solar power generation. The solar PV equipment trade encompasses a wide range of products, including solar panels, inverters, batteries, mounting systems, tracking systems, and other associated hardware.

The global solar PV equipment trade has witnessed significant growth in recent years. The decreasing costs of solar panels, advancements in technology, favourable government policies, and growing public awareness have contributed to the expansion of this trade. Countries across the world are striving to increase their share of renewable energy, and solar power has emerged as a key solution in achieving these targets.

The trade dynamics of solar power equipment are influenced by several factors. Government policies and incentives, such as feed-in tariffs, tax credits, and renewable energy targets, have a significant impact on trade flows. Trade regulations, import/export tariffs, quality standards, and certifications also affect the movement of solar power equipment across borders.

Top 10 solar PV market prospects by the year 2027

Country	Total capacity 2022 (MW)	Total capacity by 2027 (MW)	2023-2027 New Capacity (MW)	2023-27 CAGR (%)
China	402,945	1,275,725	872,780	26%
United States	140,773	393,268	252,495	23%
India	77,548	222,117	144,569	23%
Germany	67,964	155,651	87,687	18%
Spain	27,406	101,621	74,215	30%
Brazil	24,023	68,028	44,005	23%
Australia	31,024	71,208	40,184	18%
Japan	84,136	122,976	38,840	8%
Poland	12,189	40,811	28,622	27%
Italy	24,610	53,033	28,423	17%

Source: Global Market outlook (Solar Power Europe)

The Indian perspective

During the year 2021-22, about 10,266 MW of renewable capacity has been added by India, consisting of 9,068 MW from solar. The Ministry has also taken up a Solar City Scheme under which one city in each state is being converted into a Green City. The introduction of Green Day Ahead Market (GDAM) in Power Exchanges facilitates a marketplace for trading of RE Power on a day-ahead basis for accomplishment of green targets as well as support integration of Green energy.

In 2022, the Indian solar industry experienced significant growth. India added approximately 14 GW of solar capacity during the year, marking the highest annual capacity addition to date. As a result, India became the world’s 5th largest country in terms of installed solar capacity, with a cumulative installation of 63.5 GW by the end of December 2022.

In response to this success, India revised its 2030 solar target to 300 GW, part of a larger goal of achieving 500 GW of renewable energy capacity. This revision means India aims to add around 20-30 GW of solar capacity annually from 2023 onwards.

Notably, India’s non-utility scale solar sector also expanded in 2022. Rooftop solar installations reached 1.6 GW, while commercial and industrial sectors installed approximately 2.5 GW of solar through open access contracts, representing a significant 92% increase from 2021.

The Global Market Outlook for Solar Power report highlights that India is expected to add at least 20 GW, and potentially up to 35 GW, of solar capacity every year starting from 2023. The National Solar Energy Federation of India (NSEFI) predicts that India will surpass the 100 GW of solar installed capacity by early 2024, making it one of only four countries in the world to achieve this milestone.

The import dependence challenge

A report by EY and FICCI titled “Accelerating India’s Clean Energy Transition” focuses on the progress and challenges of India’s transition to clean energy, with a particular emphasis on solar energy. The report highlights that India has made significant progress in the adoption of solar energy in recent years, with solar capacity increasing from 2.6 GW in 2014 to 35 GW in 2019. However, rising costs of domestic solar PV panels could delay the pace of energy transition in India. Studies show that solar module prices have increased between 30-50% in the past two years.

The report also discusses the role of government policies and incentives in promoting clean energy adoption in India, as well as the opportunities available for businesses and investors to support India’s clean energy transition. Overall, the report provides insights into the current state of solar energy in India and the challenges and opportunities that lie ahead.

India has approximately 112.5 GW/year capacity for manufacturing solar PV cells and modules in the pipeline at various stages of development. However, India still has import dependence in solar panels due to insufficient domestic manufacturing capacity and rising costs of domestic solar PV panels.

The import dependence in solar PVs is a major cause of concern to address, which is the focus of this report. Delayed projects due to supply chain disruptions caused by COVID-19, financing challenges due to the Basic Custom Duty imposing a 40% duty on imported modules and 25% on cells, and an underdeveloped rooftop market are among the major issues.

Report methodology and trade analysis

TPCI’s research team had a two-pronged approach to this report. Firstly, the team analysed trade data mapping India’s import dependence:

a) Across the overall solar energy value chain

b) Analysis specific to solar photovoltaic cells

While polysilicon is a critical raw material in the production of solar modules accounting for around 50% of the cost, India has a high import dependence here. According to an analysis by CarbonCopy, around 12,000 tonnes of polysilicon is required for making 4 GW modules. Of late, some Indian companies are gearing up in the realm of polysilicon production, including Reliance New Energy Solar, Adani Infrastructure & Developers and Shirdi Sai Electricals.

Major issues in this sector are competition with seasoned Chinese suppliers and unreliable power supply. The manufacturing process of polysilicon is quite complex, and it requires an investment of US$ 100-150 million to produce 1 GW solar modules.

However, with boost in domestic demand, the business is increasingly becoming viable. Even if Indian manufacturing cost is higher than China by $3 per kg, the cost difference would translate to 0.9 cents per watt, which could be completely subsumed by the benefits of freight cost saving and integrated manufacturing units.

China has around 97% of global solar wafer manufacturing capacity and 85% of polysilicon manufacturing capacity. Last year, Adani Solar announced the manufacturing of large-sized monocrystalline silicon ingots for M10 and G12 wafers, making it the first such plant. Reliance New Energy Solar invested US$29 million in German wafer manufacturer, NexWafe and aims to leverage the latter’s proprietary technology to build large-scale wafer manufacturing capabilities in India.

While current capacities in wafers and polysilicon are virtually non-existent, the IEEFA/JMK report predicts that the situation could change very quickly, considering that India aims to build its presence across the value chain of solar PV in the next 2-3 years. Polysilicon and ingot capacity is expected to go mainstream only by 2026.

India has a small surplus now in solar PV panel manufacturing (HS 85414300). A number of players are now involved in solar panel manufacturing presently, including Tata Solar, Adani Solar, Servotec Power Systems, Waree Energies, Vikram Solar, etc. A total integrated capacity of 8737 MW was allocated under Tranche-I of the Solar PLI Scheme, in November-December, 2022. Considering the two tranches together, the total domestic solar PV module manufacturing capacity allocated under the Scheme is 48,337 MW, with a cumulative support of over Rs. 18,500 crore by the Government.

Table 4.1 India’s trade analysis (product segments from solar PV to electric grid)

Product Name	HS Code	HS Description	Exports in 2022 (US$ million)	4-year export CAGR	Imports in 2022 (US$ million)	4-year import CAGR	Trade balance 2022 (US$ million)
*Solar equipment (total)*			3,430.38		8,073.26		-4,642.88
Charge Controller	853710	Boards, cabinets, etc apparatus for electric control/distribution…	508.36	7.85%	847.06	10.62%	-338.7
Battery Bank	850760	Lithium-ion accumulators (excl. spent)	76.24	96.82%	2565.34	23.77%	-2,489.1
Utility meter	902790	Microtomes; parts and accessories of instruments and apparatus…	46	0.00%	358.03	3.00%	-312.04
Utility meter	902730	Spectrometers, spectrophotometers and spectrographs…	12.76	0.68%	171.07	-0.11%	-158.32
Solar PV cells and panels	854140	Photosensitive semiconductor devices, whether or not assembled in panels	164.55*	41%	4,167.4*	-2%	-4002.6
Solar PV cells and panels	854143	Photovoltaic cells assembled in modules or made up into panels	1,031.38^	NA	943.52^	NA	87.88
Charge Controller	903289	Regulating or controlling instruments & apparatus	242.4	3.26%	757.11	5.59%	-514.72
Inverter	850440	Static converters	1,663.73	20.68%	1,585.67	9.25%	78.06

Source: ITC Trade Map, *Data for 2021, as 2022 data is not available; NA: data not available/irrelevant; ^Data for 2022-23 from DGCIS

In fact, solar PV modules have witnessed a drastic ramp up in manufacturing capabilities over the past few months. According to a report by ICRA, India exported US$ 1.03 billion worth of solar cells and PV modules in 2023. This has been propelled largely by the US market, which accounted for around 97% of exports and has put restrictions on module imports from China.

A report by IEEFA projects that India’s solar PV manufacturing is emerging as a potent force, expected to reach 110 gigawatts by 2026. At this stage, India should be able to achieve self-sufficiency and also aggressively explore the export market.

Strategic roadmap for improving import dependence

Following extensive industry consultations, we have formulated a comprehensive analysis of the factors contributing to import dependence in the solar PV sector, along with a strategic roadmap for mitigating this reliance, building strong capability and emerging as a potential solar PV hub across the value chain:

Support and incentives for domestic manufacturers. The government’s provision of enhanced support and incentives for domestic manufacturers is essential to foster a robust manufacturing ecosystem in the photovoltaic industry. By offering financial incentives, tax benefits, and streamlined regulatory procedures, domestic companies are encouraged to invest in solar component production. This support enables them to scale up operations, improve technology, and compete with foreign imports effectively.

Standardisation of products to minimise price fluctuation. Standardization of products within the photovoltaic industry is crucial to minimize price fluctuations and create a stable market environment. When solar components adhere to uniform quality and performance standards, consumers can confidently compare products based on objective criteria. This promotes fair competition and prevents price distortions caused by varying product attributes. Standardization also enhances investor confidence and encourages long-term planning, leading to greater investments in the solar sector.

Creation of manufacturing hubs: Focusing on establishing manufacturing hubs in different regions for solar PV manufacturing is a strategic approach that can yield numerous benefits for India’s photovoltaic industry. By decentralizing production facilities, the country can capitalize on regional strengths, resources, and skilled labor pools. This will not only drive economic growth and employment opportunities in various parts of the country but also reduce logistics costs and improve supply chain efficiency. Additionally, localized manufacturing hubs will enhance regional competitiveness, stimulate innovation, and foster healthy competition among states, resulting in accelerated development and self-reliance in the solar PV sector.
Achieving cost competitiveness: To achieve cost-effectiveness in the Solar PV sector, the government must provide greater financial incentives and policy support to attract private investments in solar projects, fostering economies of scale. Secondly, research and development initiatives should focus on advancing solar technology to drive down production costs. Thirdly, streamlined regulatory processes and a transparent permitting system can reduce project development expenses. Lastly, the government should promote skill development and training programs to create a skilled workforce, optimizing labour costs.

Raising production capacity: Focus on increasing production capacity for solar components and technologies domestically is crucial for India to meet the surging demand for renewable energy. By bolstering domestic manufacturing, India can reduce import dependence, ensuring a steady supply of solar products and technologies. A robust domestic production ecosystem will drive economies of scale, leading to cost reductions, improved affordability, and enhanced accessibility for consumers.
Balancing priorities: Through well-crafted policies and regulations, the government can provide necessary support and incentives to bolster domestic industries, such as solar PV manufacturing. This protection helps foster self-reliance, job creation, and economic growth. Simultaneously, the government can implement measures to prevent monopolistic practices and ensure fair competition, thereby curbing excessive profiteering.

Developing technology and innovation capabilities: India’s focus on developing its own technology and innovation capabilities is imperative to reduce import dependence in the solar PV sector. By investing in R&D, fostering collaborations between academia and industry, and incentivizing indigenous innovation, India can create cutting-edge technologies and cost-effective solutions tailored to its unique needs.
Develop a strong domestic market: Focusing on creating a strong domestic market for solar products is pivotal to encourage flourishing manufacturing in India. A robust domestic demand serves as a catalyst for investments in solar manufacturing, as it assures businesses of a stable and lucrative market. By promoting solar adoption through policies, incentives, and awareness campaigns, the government can stimulate consumer interest and boost the demand for solar products. It is crucial for the current solar PLI scheme to focus on developing sufficient manufacturing capacity for critical components like 98% grade silicon from quartz, polysilicon, ingots, and wafers, which are essential for the production of solar PV cells and modules. The scheme’s focus on developing sufficient manufacturing capacity for critical components, such as 98% grade silicon from quartz, polysilicon, ingots, and wafers, is paramount for the production of solar PV cells and modules. These components form the backbone of the solar value chain and are crucial to achieve self-reliance in the sector.

Relief for critical commodities: Granting relief for critical commodities used in solar module manufacturing, such as glass, aluminium and soda ash, is essential to bolster India’s solar industry. By providing subsidies or duty exemptions on these inputs, the government can significantly reduce the production costs for solar modules.
Any safeguard duties to protect local manufacturers can be formulated in consultation with the industry. Formulating safeguard duties to protect local manufacturers should be a collaborative effort in consultation with the industry. Engaging stakeholders ensures that the duties are well-informed, targeted, and proportionate to the challenges faced by domestic manufacturers. By involving industry representatives, the government gains valuable insights into the sector’s specific needs and vulnerabilities. This collaborative approach fosters a sense of ownership and buy-in, ensuring that the safeguard duties are fair, transparent, and effectively address import-related issues.

To view the report, click https://www.tpci.in/resources/publications/