The US, Europe, Japan and India are investing heavily in solar energy to reduce fossil fuel use in electricity generation and achieve green energy goals. However, they face a major challenge: rising import bills and heavy dependence on China.
China controls over 80 per cent of global solar production and exports and 97 per cent of the world’s polysilicon supply. Can the world’s green energy future truly be secure if most of the solar equipment come from just one country?
To appreciate the issues involved, let’s examine how solar panels are made.
Production process
It’s a six-step process that starts with mining of quartz silica sand, which is chemically refined into metallurgical-grade silicon and then into polysilicon, containing 99.99 per cent of silica. The polysilicon is then converted into thin wafer strips.
These wafers are coated and enriched to create solar cells capable of converting sunlight into electric currents. The cells are assembled into solar modules, sealed in protective layers, and fitted with frames, junction boxes, and connectors, making them ready for installation.
For a $100 solar panel, costs increase at each stage of processing: $20 for silica, $30 for metallurgical-grade silicon, $50 for polysilicon, $60 for wafers, $85 for solar cells, and $100 for the final assembled panel.
China, displaying remarkable foresight, planned early, since 1990s and built a dominant solar industry through strategic planning, government support, and advanced technology. In 2023, China was the top exporter, shipping $39.5 billion in solar modules and $4.2 billion in solar cells.
However, China’s aggressive export targets have led to oversupply and falling prices. In 2024, China produced enough polysilicon for 700 GW of solar modules, while global demand is expected to be less than 600 GW. This surplus has caused prices to drop 40-50 per cent, increasing pressure on manufacturers in countries like the US and India.
In India, most projects use imported, ready-made solar modules. Local production of solar panels also relies on imports.
About 90 per cent of solar manufacturing in India involves assembling imported cells into modules, with only 15 per cent local value added. Only a few Indian companies make solar cells at a commercial scale from imported polysilicon or wafers, adding 30-40 per cent local value.
No Indian companies produce solar cells entirely from raw materials like silica sands. Limited manufacturing expertise resulted in high imports.
India’s imports
In FY24, India imported solar components worth $7 billion. This included $4.4 billion in ready-to-use solar modules, $1.9 billion in solar cells, and $1 billion for essential parts like inverters, cables, junction boxes, transformers, and other electrical components needed for solar installations.
China was India’s largest supplier, providing $3.89 billion worth of solar cells and modules, making up 62.6 per cent of total imports. Vietnam was the second-largest supplier at $1.02 billion (16.5 per cent), followed by Malaysia at $549.8 million (8.9 per cent) and Thailand at $248.8 million (4 per cent).
To reduce dependency on Chinese imports, India imposed a 40 per cent customs duty on solar modules and a 25 per cent duty on solar cells. However, imports from Vietnam, Malaysia, and Thailand come duty free under the India-ASEAN Free Trade Agreement.
India has taken several steps to promote local manufacturing and reduce imports. The Approved List of Models and Manufacturers favours local manufacturers by requiring government-backed projects to use solar modules that meet BIS standards.
The Production Linked Incentive (PLI) Scheme, with a budget of ₹24,000 crore, supports fully integrated solar PV manufacturing units.
Additionally, increased auctions and new rooftop solar support programmes have further boosted the sector’s growth. However, despite these steps, India will struggle to achieve renewable energy target.
India installed 15 GW of solar capacity in FY 2024, raising the total to 90.8 GW by September 2024, compared to just 2.8 GW in 2014.
However, to meet its 2030 goal of 500 GW in renewable energy, with over 80 per cent of this target expected to come from solar power, India needs to add 65-70 GW each year. This target, compared to the US’s plan to add 32 GW in 2024, seems ambitious, and could push solar import bills from the current $7 billion to around $30 billion, with most imports coming from China.
The US & EU
India is not alone in facing the rising import dilemma, The US and EU also completely depend on imports of solar equipment. In 2023 the EU imported $26.17 billion in solar cells and modules, while the US imported $22.05 billion.
The EU buys about 64 per cent of its solar equipment from China, but the US avoids direct purchases from China due to concerns over forced labour in Xinjiang. Instead, the US imports modules from Vietnam and Thailand, which still rely on Chinese materials like polysilicon and wafers.
In the US, import restrictions and tariffs have increased costs, but local solar manufacturing remains limited, adding only 10-15 per cent value to imported components like solar cells, mainly from China and Vietnam.
Only a few companies in the US or India can produce solar panels from earlier stages, such as polysilicon or wafers, which have higher value addition (30-50 per cent).
No country, except China, can make solar cells entirely from the initial silica ore processing stage.
India must review its 2030 targets of generating 500 GW energy through renewable energy. As explained, achieving targets could be challenging.
India must invest in upstream solar production, from raw materials like silica sand to finished solar panels, to reduce its reliance on imported wafers, polysilicon, and cells. It should also focus on building local capacity for producing aluminium frames, glass, and other essential materials.
Like minded countries, the US, EU, India, and Japan may collaborate to set up such large-scale solar cell manufacturing facilities. While costly at first, this is crucial to reducing dependence on China.
The writer is the founder, Global Trade Research Initiative