The Indian solar sector has been resilient through the Covid-19 economic crisis and continues to be an attractive industry for investors globally. The increased participation of foreign investors in the Indian solar sector resulted in the discovery of the record low tariff of ₹2.36 per unit in June 2020, even as sectors across the economy are struggling.

The government has increased its focus on achieving self-reliance in the energy and manufacturing sectors as it navigates the economic churn. In the past five years, solar cells and modules of around ₹93,000 crore have been imported into India. Hence, scaling up solar manufacturing at this juncture can not only improve energy security but also support the country’s growth, accelerate recovery and create new jobs.

Recent estimates by the Central Electricity Authority suggest that India will install new solar projects to the tune of 200 GW (AC capacity) by 2030. Even with reduced solar module prices ( ₹10/Watt) and 50 per cent DC overloading, this would translate to a manufacturing opportunity of approximately ₹3 lakh crore ($40 billion) in terms of the current value. The government needs to act urgently to ensure that we tap into this massive opportunity to retain the value created by India’s energy transition in India and for Indians.

Manufacturing capability

Manufacturing of crystalline solar modules involves four key production steps — polysilicon (from quartz), wafer (from polysilicon), cell (from wafer) and finally module (from cell). India currently has 10 GW and 3 GW of annual solar module and cell manufacturing capability, respectively. However, many of these facilities are obsolete or non-functional. Despite being competitive in solar module manufacturing in the early 2000s, India has lost the race to countries like China, Malaysia, Vietnam and Thailand. Many manufacturing facilities exist in these countries, which have capacities greater than India’s combined capability.

In August 2020, the CEEW Centre for Energy Finance released a report analysing the reasons behind the cost differential between Indian and Chinese modules. The analysis suggests that solar modules manufactured in India are up to 33 per cent more expensive than their Chinese counterparts. Hence the pricing of solar modules is critical for project developers since modules account for over 50 per cent of the total project costs.

Due to limitations in recording methodology, we don’t know the quantum (in Watt) of imports. However, secondary analysis suggests that the import quantum was as high as 80-90 per cent in recent years. To improve competitiveness with imported modules and increase the share of domestic products, the government needs to undertake measures in the short and long term.

The way ahead

First, the long-term visibility of the import duty structure is needed to encourage both domestic and international investors to set up manufacturing facilities in India. A gradual imposition of basic customs duty (up to 20 per cent) on both solar cells and modules is recommended. The government should also plough back the revenue collected via import duties into R&D and focus on the manufacturing of next-generation technologies.

Second, the government should also focus on manufacturing wafer and polysilicon in the country. These are capital, energy and water intensive processes and hence would require fiscal and infrastructure support from the government. Further, policymakers should prioritise setting up dedicated solar manufacturing parks as MSME clusters near key ports with a focus on bill of materials manufacturing.

These parks would focus not only on manufacturing Ethylene Vinyl Acetate (EVA), backsheet, junction box, aluminium frame and solar glass but also on other vital components like inverters and module mounting structures. Along with enabling policy support, the success of these parks would be dependent on the ability to attract a skilled workforce.

Third, the manufacturers and government need to start thinking beyond India. An opportunity emerging from the current Covid-19 crisis is that many countries want to diversify their procurement process, and India is emerging as a strong alternative. Focussing on international markets, especially the member countries of the International Solar Alliance, will be beneficial for domestic manufacturers.

Finally, the most critical tool but often undervalued is policy certainty. In the past, we have seen the government propose and initiate reforms which have not achieved their full potential. We recommend that the government set up an ambitious target for different parts of the value chain — say 50 GW of cell and module manufacturing by 2030. Any fiscal, tariff or administrative reform must be undertaken and course-corrected to achieve the set targets. Different ministries and financial institutions need to work in a coordinated manner and take timely decisions.

Until now, we have artificially limited our ambitions to scale up solar manufacturing. The current crisis has shifted the conversation on manufacturing from the margin to the mainstream, and we need to leverage this opportunity to become a global leader and self-reliant in the sector.

The writer is Manager-Market Intelligence at the Centre for Energy Finance at the Council on Energy, Environment and Water