India’s solar PV revolution: A ‘coming of age’ business opportunity?

India’s solar photovoltaic (PV) module manufacturing capacity is expected to reach 110 GW by 2026, achieving self-sufficiency in PV module demand. The country is expected to focus on expanding its presence in global markets, offering high-quality and competitively priced PV products as an alternative to China.

Favourable policies, especially the production-linked incentive (PLI) scheme, have driven rapid growth in PV manufacturing. However, challenges such as reliance on imports for components, low domestic demand, and a shortage of skilled manpower hinder the industry’s full potential.

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With a growing population, energy demands and exhaustion of natural resources, the world is looking for alternative energy sources for sustainable development. And, solar energy is one of the most abundant and cleanest energy sources.

According to the Indian Renewable Energy Development Agency Limited (IREDA), India is bestowed with abundant solar energy capable of producing 5,000 trillion kilowatts (kW) of clean energy. With about 300 clear and sunny days in a year, the calculated solar energy incidence on India’s land area is about five quadrillion kilowatt-hours (kWh) per year (or 5 EWh/yr). If harnessed efficiently, this energy can substantially reduce the dependence on fossil fuels and reduce the carbon emissions involved in energy generation.

India’s Solar Energy Market

The installed solar energy capacity has increased by 24.4 times in the last 9 years, and stands at 66.7 GW as of  May 2023. Moreover, the country recorded highest YoY growth in renewable energy additions of 9.83% in 2022. India’s solar market is estimated to be at 79.07 GW by the end of 2023 and is projected to reach 195.11 GW in the next five years, registering a CAGR of 19.8%.

On the basis of technology, the market is segmented into solar photovoltaic (PV) and concentrated solar power (CSP). PV materials and devices convert sunlight into electrical energy. A single PV cell is usually small and are made of different semiconductor materials. They typically produce about 1 or 2 watts of power. To withstand the outdoors for many years, these cells are clubbed between protective materials in a combination of glass or plastics. To boost the power output of PV cells, these are connected together in chains to form larger units known as modules or panels.

Source: IRENA (Solar PV installed capacity in GW)

The solar PV segment is expected to have the biggest market share in the next five years since the cost of solar modules is decreasing and these systems can be used for generating electricity and water heating. Additionally, the government has started investing in utility projects, leading to this segment’s growth. According to IRENA, India’s installed solar PV capacity recorded a 31% YoY increase from 49.3 GW in 2021 to 62.8 GW in 2022.

After the application of BCD (Basic Custom Duty) and the Approved List of Models and Manufacturers (ALMM) in the current financial year, solar installations in India have plummeted. Amid the first and last quarter of 2023, solar installations fell around 46.4% from 4,650MW in Q1 2023 to 2,489MW in Q4 2023. This is due to the lack of availability of high-quality high-wattage modules.

On the other hand, India recorded a huge jump in solar module exports during the previous financial year owing to the restrictions imposed by other nations on Chinese goods and the “China+1” strategy, according to IEEFA. Indian enterprises exported modules worth US$ 388 million during April-November, 2022 from US$ 71 million in 2021. Accounting for about 93% of exports, the US was the largest consumer of Indian PV modules.

On the other hand, concentrated solar power (CSP) is an approach to generate electricity through mirrors. The mirrors reflect, concentrate and focus natural sunlight to a specific point, converting it to heat. The heat is then used to create steam which drives a turbine to generate electrical power. According to the International Energy Agency (IEA), CSP generation increased by an estimated 34% in 2019. Although experiencing an exponential growth, the CSP technology requires an average growth of 24% through 2030 to reach its Sustainable Development Goals (SDGs). The critical challenges for CSP are related to the lack of reliable direct normal irradiance database, indigenous manufacturing and competition from PV.

Solar PV manufacturing landscape in India

The current manufacturing capacity in India across the PV value chain is sub-optimal, but is likely to grow by leaps and bounds this decade. Indian companies can currently manufacture only modules and cells. By 2026, they are expected to have a significant manufacturing presence in polysilicon (38 GW) and ingots/wafers (56 GW). By the same time, module production capacity is expected to reach 110 GW, approximately 3 times the current capacity.

According to a report by the Institute for Energy Economics and Financial Analysis (IEEFA), India is expected to witness a significant jump in PV manufacturing and will establish self-sufficiency to emerge as the second-largest PV manufacturing country after China.

Meeting India’s renewable energy target by 2030 requires an annual addition of 25-30GW of solar PV installed capacity. To accelerate the setting up of solar installations, the government has taken several steps:

• Implementation of the Production Linked Incentive (PLI) scheme under the National Programme on High-Efficiency Solar PV Modules, for achieving domestic manufacturing capacity of Giga Watt (GW) scale in high-efficiency solar PV modules and solar PV cells with an outlay of Rs 24,000 crores.
• The government has introduced a national programme on “high-efficiency solar PV modules with Tranche1 worth Rs 4,500 crore (US$ 605 million) for setting up of 8.737 GW of fully integrated solar PV module manufacturing capacity and Tranche 2 worth Rs 19,500 crore (US$ 2.61 Bn) to set up 65GW per annum of fully/partially integrated solar PV module manufacturing capacity.
• The MNRE introduced the Approved List of Module Manufacturers (ALMM) in 2019 which ensures quality standardisation and lowers the industry’s dependency on imported solar modules.
• Under some schemes of the MNRE, namely CPSU Scheme Phase 2, PM-KUSUM Component B and Grid-connected Rooftop Solar Programme Phase 2, where government subsidy is offered, it has been mandated to source solar PV cells and modules from domestic sources.
• Under the Public Procurement Order, procurement and use of domestically manufactured solar PV modules and domestically manufactured solar inverters have been mandated for government entities.
• Discontinuation of Customs Duty Concession Certificates for import of material/equipment for initial setting up of solar PV power projects which is in effect from February 2021.

Risks and Challenges

Although the figures show a promising future for the PV manufacturing landscape in India, there are several major challenges hampering the growth of the sector. Although key challenges including supply chain disruptions, reductions in polysilicon price and regulatory clarity regarding BCD have been addressed to some extent, there are a few pertinent challenges:

1. Duties on Cell and Ancillary Components: After March 2022, a BCD of 40% is applicable on the import of solar modules and 25% on the import of solar cells. Indian solar cell manufacturing lags significantly and is unable to meet the demands of domestic module manufacturing. Hence, without ample domestic cell manufacturing, Indian module manufacturers are bound to import solar cells and pay a BCD of 25%.Moreover, manufacturers have to pay anti-dumping duties for importing ancillary components of a solar module, such as back sheet, frame, glass, ethylene vinyl acetate (EVA) etc.These additional costs contribute to higher input expenses, resulting in elevated selling prices when compared to Chinese competitors. The cumulative effect of these duties constitutes a considerable portion of the total cost of a domestically manufactured module upon arrival. Consequently, the final landed price of a domestically manufactured module is nearly on par with its imported equivalent, despite the imposition of a 40% BCD.
2. Lack of Domestic Solar Equipment Manufacturing: Another challenge that the Indian solar PV manufacturing industry faces includes issues related to machinery since most of the machinery comes almost entirely through imports, majorly from China. Thereafter, in any event of breakdown, process fine-tuning etc there is an understated overreliance on spare parts/assistance from the PV machinery supplier, located mostly out of India.
3. Polysilicon production: Another hurdle that is faced in India is the production of polysilicon, the solar PV manufacturing supply chain’s most capital-intensive and time-consuming process as it takes at least two to four years to set up a its factory. Moreover, the considerable infrastructure investment makes any polysilicon facility of less than 3-4GW financially unviable. Due to the higher initial capex and industrial electricity prices, it is more expensive to build and operate a polysilicon factory in India.
4. Shortage of skilled manpower in solar manufacturing: India lacks skilled professionals with experienced know-how in installing, commissioning and operating a solar manufacturing facility, especially for upstream components, such as cells, wafers, polysilicon etc. The shortage of skilled engineers while commissioning or configuring their modules or cell lines has led to improper site configuration, leading to installation delays and inefficient operations, affecting the factory production output.

Source: JMK Research, figures in US cents/watt peak

Arun Singh, Purchase & Procurement Manager at Loom Solar Pvt. Ltd, one of the leading solar manufacturers talks about the challenges faced by the industry:

“The solar industry in India is confronted with numerous challenges. These include the escalating cost of raw materials, a shortage of skilled labor, inefficiency in domestic solar cell production, reliance on other countries, and inconsistent government policies. As a result of these issues, it may be difficult to attain India’s goal of establishing 4 GW solar plants each month. Consumers demand highly efficient solar panel products, which further complicates the manufacturing process and aligning it with consumer expectations.”

Conclusion

The Indian PV manufacturing industry is rapidly growing with expanding investments and favourable government policies. The government’s PLI scheme aims to boost PV manufacturing, particularly for upstream components. To restrict imports, the government has implemented barriers like tariffs and mandatory listings. However, challenges remain, including heavy reliance on China for raw materials and the delayed implementation of the ALMM, affecting solar installations. India must build enough capacity to meet domestic demand and find new export markets beyond the US and Europe, considering their growing PV manufacturing capabilities.

The sector attracts both financial and strategic investors, including sovereign wealth funds, pension funds, private equity funds, oil and gas companies, and thermal power generators. Financial investors seek long-term returns through the energy transition, while strategic investors view solar PV as an expansion of their existing businesses.

The Indian solar PV space has witnessed various deals involving partnerships, buyouts, and portfolio asset sales.  According to Renewables 2022 Global Status Report, global new investment in renewable power and fuels was recorded at US$ 366 billion in 2021, otut of which solar PV captured a share of 56%. India has followed a similar trend as total new investment in renewables stood at US$ 11.3 billion, with the share of solar PV  at around 66%. Multinational corporations are also investing heavily to decarbonize their operations and achieve net-zero targets. With support from the government, favourable regulations, and economic and demographic factors, the solar sector in India is expected to experience significant growth and remains an attractive growth market.