The Budget has once again underscored the Centre’s determination to promote solar power to curb carbon emissions and promote energy security. The Centre has topped its five-year production-linked incentive scheme for making solar modules by a generous ₹19,500 crore, in view of the investment response received since November 2020. It has received proposals to set up a whopping 58 GW of module capacity (about four times prevailing levels), for which the initial sum of ₹4,500 crore was insufficient. Clearly, module capacity needs to be ramped up to meet decadal goals. India has targeted an installation of 280 GW of solar capacity by 2029-30, up from the existing level of 49.35 GW, whereas it has “limited operational annual capacities” of around 2.5 GW for solar PV cells and 9-10 GW of solar modules. However, the solar sector in India is seeing rapid change on both demand and supply fronts. As regards the former, falling unit costs of solar have led to utilities being open to buying solar power, more so with sophisticated power trading systems in place. Commercial, residential and agriculture demand is rising.
With respect to supply, over two thirds of the solar cells are imported from China, which, though a marked improvement over the last four or five years, remains an area of concern. India has evolved in assembling modules, but it is in processing and producing silicon wafers that capacity is wanting. To create another 230 GW of capacity over eight years would amount to an annual addition (or an integrated capacity to make modules from scratch from polysilicon to wafers to final assembly) of nearly 30 GW. At present, indigenous inputs account for about 3-4 GW of capacity creation per annum out of an annual solar capacity addition of roughly 10 GW. But with investor interest, this is slated to change. If renewables are to account for about 40 per cent energy used, against 12 per cent now, it makes sense to reduce dependency on silicon wafer imports.
But there’s a trade-off: India produces solar cells at about 25-30 cents, which at present equals China’s cost of production. But China’s costs have risen because of temporary shocks-- its costs had fallen to 18 cents earlier. The duty of 25 per cent on cells and 40 per cent on modules might still render them competitive if China’s costs fall to earlier levels. While integrated capacities could narrow the differential, it is also worth considering whether an additional cost is worthwhile for strategic reasons.The PLI encourages scale and is based on cells/modules sold. The Centre’s push to solar must be complemented by a similar impetus to green hydrogen and frontier areas such as non-lithium based batteries, where no country holds an advantage as yet. China remains the leader in solar, but India’s chance lies in the evolution of a world order that seeks to develop alternative supply chains in crucial areas.