CRISIL Ratings analysts estimate India will have 38-43 GW of annual solar module manufacturing capacity by the end of fiscal 2024-25. The capacity addition is driven by strong domestic demand, favorable government policy, efficiency, and price competitiveness. 

India’s solar module manufacturing capacity is set to grow almost 400% to 38-43 GW by the end of fiscal 2024-25 from 8 GW as of March 31, 2021. After fiscal 2021, the nation will have 30-35 GW of fresh module capacity commissioned with strong demand, favorable government policies, efficiency improvement, and cost-competitiveness driving the growth, according to a new report by CRISIL Ratings.

The analysts’ estimate is based on the Capex plans of the top eleven domestic module manufacturers (which account for around 80% of the current effective solar module installed capacity of 8 GW) and some new entrants. 

Drivers

Ankit Hakhu, Director, CRISIL Ratings, said, “With the government supporting domestic manufacturers through policy measures, their competitiveness relative to the Chinese is expected to improve. The imposition of 40% customs duty on imported modules and the Production-Linked Incentive (PLI) scheme benefits will not only eliminate the existing price gap but may even make domestic modules competitive by 2-3 cents/watt at current prices.” 

These supply-side interventions will be complemented by a growing demand due to continuing government thrust on renewables, and the private sector’s focus on the environmental, social and governance (ESG) norms. 

CRISIL Ratings expects India to add a new solar capacity of 14 GW per annum between fiscals 2022 and 2024. The annual addition will grow further, given the nation’s aggressive renewable energy targets—driving the demand for cells and modules. 

Developers may prefer domestic modules not only for their improved price competitiveness but also to get better control of the supply chain and timely supplies compared with imports. It will also help them offset risks from surging freight costs seen in the recent past, it stated. 

Investments

Aditya Jhaver, director, CRISIL Ratings, said, “We estimate INR 50,000 crore (US$6713 million) of investments across the value chain for capacity building in India through fiscal 2025. Module and cell manufacturing capacity is estimated to increase by 30-35 GW each, while under the government’s production-linked incentive (PLI) scheme, we may also see backward integration into polysilicon and wafer capacities.”

“A portion of the capex is also moving towards newer technologies such as mono perc/bifacial modules, where efficiencies are higher and comparable with imports. That, along with healthy demand — which is supporting order books — and favorable government policies, is expected to drive operating margins for integrated solar module manufacturers (manufacturing both cells and modules) to 12-13%. It will also result in a payback period of 4.5-5 years, assuming 50% utilization levels.”

The solar module manufacturing value chain starts with polysilicon and/or ingots, which are converted into wafers. These wafers are used to produce solar cells, which are then assembled to manufacture solar modules. 

As of March 31, 2021, India had 3 GW of solar cell capacity (mostly used for captive production of solar modules) and 8 GW of effective solar module capacity. However, there is no manufacturing capacity for polysilicon and wafers yet, said the analysts.

The absence of backward integration renders India-made modules uncompetitive with cheaper imports.

According to CRISIL, India’s 8 GW of module capacity remains underutilized at 20% as panel imports from China are 15-25% (4-6 cents/watt) cheaper because of subsidies and scale efficiencies. As a result, nearly 80% of India’s current annual solar module demand is met by Chinese module manufacturers. 

This low demand has till now disincentivized major investments in better-technology products and backward integration into capital-intensive stages of polysilicon and wafer manufacturing.