PHOTOVOLTAIC MANUFACTURING OUTLOOK IN INDIA – PART 2

Several policy uncertainties (regarding Open Access, Net Metering regulations etc) in various states also can be attributed to the reduced demand.

FY2022 is expected to be a significant year for solar PV imports, owing to the resumption of construction activity of solar projects delayed in FY2021 due to the pandemic. The expiry of SGD in July 2021 also will enable a major uptake in imports. However, 40% Basic Customs Duty (BCD) applicable on solar module and 25% on cells from April 2022 is again likely to lead to lesser imports post-FY2022.

Domestic PV Manufacturing Landscape

Currently, India has a cell manufacturing capacity of 4.3GW and a module manufacturing capacity of ~18GW.₁₂ These are however, just nameplate capacities. Actual production output at any given time is significantly lower as most of India’s solar manufacturing facilities operate at CUF 40-50% or less, as discussed in detail in the Key Challenges section of this report.

India has made substantial progress in expanding domestic module manufacturing capacity in recent years but greater impetus is needed to achieve the renewables target of 500GW₁₃ (300GW of solar) by 2030. Prolonged dependence on imports increases the potential for severe associated risks. Shortages of raw materials, power price hikes in China and surges in international freight charges pushed up module prices by more than 25% in 2021. This highlights the need to have sustainable, vertically integrated domestic solar manufacturing.

India has been a big laggard in manufacturing, not just upstream PV components such as wafers and cells but also of modules.

In May 2020, the Atmanirbhar Bharat Abhiyan (Self-reliant India) campaign was launched to benefit all sectors of the national economy. In line with this objective, the government approved the Ministry of New and Renewable Energy (MNRE)-proposed Production-Linked Incentive (PLI) scheme in April 2021 to encourage domestic manufacturing of globally competitive solar PV modules.

Despite major plans announced by several domestic manufacturers, to date there is no upstream manufacturing of materials such as wafers or ingots. So strong was the industry response to the PLI scheme for integrated manufacturing of “High Efficiency Solar PV Modules” – from domestic and international companies – that the government increased the PLI funding for the segment from Rs 4500 crore to Rs 24,000 crore. This scheme alone, if judiciously implemented, can increase the integrated solar module, cell and wafer domestic manufacturing capacity several times over in the next three to four years.

Cell Manufacturing Capacity

As of November 2021, the total domestic cell production (nameplate) capacity in India was 4.3GW, or nearly a quarter of domestic module production capacity. Lack of vertical integration of domestic solar fabs is one reason for the gap between cell and module manufacturing capacities. Also, the demand for India-made solar cells is generally low because module suppliers demand cells of higher grade (in terms of wattage, efficiency etc.). Further, the narrow production scale of solar cell fabs means domestic cells are more expensive, so the general preference in cell demand is for the cheaper yet superior import counterparts.

Module Manufacturing Capacity

Over the past five years (see figure 5), India has made substantial progress in solar manufacturing. Solar module manufacturing capacity has trebled from 5.8GW in 2016 to about 18GW in December 2021. However, as much as these numbers paint a positive outlook, there is still a long way to go in achieving self-sustenance.

Vikram Solar, with the opening of a new factory in Tamil Nadu, became India’s largest solar module manufacturer at 2.5GW capacity in mid-2021. Adani expanded its solar fab by 2GW in December 2021, regaining its position as the largest domestic module manufacturer. As several leading companies have announced major expansion plans in solar manufacturing, it is highly likely that the domestic player rankings for cell and module manufacturing will change often in coming years.

It’s also interesting to note that most of the solar module manufacturing is concentrated in a few states. Easy access to ports (for international trade), cheap land and available power near Special Economic Zones (SEZ) are among the reasons for the concentration of solar module manufacturing in these states. Gujarat will continue to host the majority of manufacturing capacity.

Wafer Manufacturing Plans

India has no existing manufacturing capacity for the initial stages of the PV value chain, namely from polysilicon to wafer. For raw materials, Indian solar manufacturers still depend on imports, mainly from China. China is the leading producer of silicon wafer with a 97.4% share of the global market, and polysilicon with 67% share.₁₄

India cannot achieve self-sustenance in solar technology without a holistic and integrated manufacturing approach. Without large-scale domestic manufacturing of upstream PV value chain products, there remain overarching risks of logistics and commodity price fluctuations posed by huge solar imports.

Several manufacturers now entering the field of solar manufacturing are looking to build an integrated facility that includes all PV value chain components from polysilicon to solar module. Among those looking at wafer manufacturing are big private Indian conglomerates such as Reliance and Jindal, as well as one of the world’s biggest coal companies, Coal India. Reliance invested $29 million in German wafer manufacturer NexWafe GmbH. Reliance will use NexWafe proprietary technology for manufacturing solar wafers in its coming PV factory in Jamnagar. There has been interest from U.S.-based CubicPV, a merger of 1366 Technologies and Hunt Perovskite Technologies (HPT), two disruptive technologies in the solar manufacturing domain – 1366 via its direct wafer process and HPT using Perovskite Crystal Technology. Credit must be given to the PLI scheme for the immense impact it has had on how businesses, domestic and international alike, view solar manufacturing in India.

Addition of these capacities in the Indian solar industry in the medium term will be a welcome move to boost upstream solar manufacturing.

Domestic Manufacturers’ Expansion Plans

Announcements in the past year by industry leaders or new entrants exploring the market indicate solar manufacturing will be a key area of growth domestically. Cumulatively, about 33GW of module and 29GW of cell production capacity are in the pipeline to add to existing domestic capacity by 2025.₁₅ For domestic solar module manufacturing, this represents an impressive CAGR of ~30%. Despite the industry’s short-term challenges, manufacturers are very optimistic about the long-term sustainability of the solar sector.

To reach the 500GW target of non-fossil fuel-based installed capacity by 2030, India needs about 30GW of solar installations each year. Current domestic output cannot meet such demand. Based on expansion plans announced by several manufacturers, it is estimated domestic capacity is likely to exponentially increase to fulfil that 30GW/year requirement by the end of 2023.

In this projected increase of solar manufacturing capacity in coming years, much will depend on the timely and efficient implementation of government policies.

New Entrants Looking to Explore the Market

Favourable scenarios for solar manufacturing have generated huge interest from several companies and these conducive conditions can make India a solar manufacturing hub in years to come.

• Favourable government policy environment – With the introduction of schemes such as PLI, Approved List of Models and Manufacturers (ALMM) and BCD, the government is betting big on making India self-sustainable in solar equipment. These schemes are either in the pipeline or have been implemented and the positive impact of the policies can already be felt. PLI tender for Solar PV manufacturing received bids worth 54.8GW against a total sanctioned bid of 10GW.
• Augmentation of required demand – India has promised to reach 500GW renewable energy capacity in 2030, including about 300GW from solar. To add about 30GW of solar capacity a year, existing and imminent players see the sense of keeping supply as close as possible to the demand.
• Availability of raw materials – Access to raw materials such as polysilicon, wafers etc, critical to manufacturing of solar cells and modules, has been a major hurdle for Indian major manufacturers scaling up and competing with Chinese counterparts in price and quality. Impending entries include big Indian conglomerates such as Reliance Group and powerful state Public Sector Undertakings (PSUs) such as BHEL and Coal India (which declared plans for wafer and polysilicon manufacturing within the country). It seems highly likely that Indian manufacturers soon will not have to depend entirely on exports and contend with the risks associated with critical raw materials.
• Easier financing options – It is widely accepted that the quality of funding influences the selling price of the product. According to leading players, the outlook of investors, banks and Non-Banking Financial Companies (NBFCs) towards investing and lending funds/loans for solar manufacturing installations has changed. Loans are easily available at a stable 7-8%. Various firms are looking at going public, following the recent Initial Public Offering (IPO) of ReNew Power. Waaree Energies filed for IPO in September 2021, with approval awarded in January 2022. The issue size of the IPO will be Rs1500 crore (US$201m), the proceeds to be used for new solar cell and module fabs.
• Predicted technological changes – Over the years, cells and wafers have become bigger and more efficient and the underlining technology has evolved, e.g., from the once-dominant poly-Si to mono-Si at present. It is estimated that “mono PERC bifacial” will be the dominant technology in five years. Original equipment manufacturers (OEMs) around the world have prepared for this and the solar module and cell lines under construction are such that they can handle various cell and wafer size. Market entrants have an opportunity, if planned properly, to invest in a low-risk, high-profit business.

Those entering solar manufacturing in India are targeting big installation capacities as well as upstream integration in line with what the Government of India (GoI) is trying to achieve with its PLI scheme for solar modules. India is currently not a hub of solar manufacturing but there is great potential, and confidence, in its solar growth story.

Major project developers such as ReNew Power and Avaada are entering the solar manufacturing space to exploit the advantages of vertical integration. As solar modules make up 50-60% of the total cost of solar projects, using in-house modules reduces the considerable risks and so overall project cost. Most of the coming plants are in coastal states with easy access to ports. ReNew Power’s under-construction integrated solar cell and module fab has a capacity of 2GW. Avaada Group intends to set up a 5GW integrated solar cell and module manufacturing unit. The trend of project developers venturing into solar manufacturing to have better control of their input costs is expected to grow in the coming years.

Coal India, one of the biggest coal suppliers in the world, will install 4GW of integrated wafer, cell and module manufacturing fab in India. India’s largest power generation equipment manufacturer, BHEL, has begun solar module manufacturing. Clearly, Indian PSUs that have long been associated with conventional sources of energy have realised the significance of RE. Many PSUs are expected to invest in solar manufacturing at various scales. With central government oversight, PSUs could become one of the leading players in domestic solar manufacturing.

With encouraging government policies and in anticipation of huge demand in India in the coming decade, several international players see huge potential in solar manufacturing in India. This is demonstrated by the move of U.S. manufacturers First Solar and CubicPV to set up facilities in India in coming years. Both bid for the PLI scheme. First Solar, interestingly, is betting on its thin-film modules to make a comeback in India by setting up a 3.3GW facility.

Numerous Indian conglomerates are also expected to enter the solar manufacturing business. Reliance, Jindal Power and Shirdi Sai Electricals were declared the winners in the first tranche of the PLI scheme and combined are looking to set up about 12GW of integrated manufacturing. Tata is already manufacturing solar modules and cells, but at a smaller scale. With capital backing and manufacturing at scale, the conglomerates can be a major game-changer in the nation’s global standing. However, if the entry of conglomerates diminished the visibility of small and medium players, it would create concerns of business shutdown.

Backed by huge capital, Reliance plans to target every renewable energy segment

Going big in renewables and backed by huge capital, Reliance plans to target every RE segment, not just solar manufacturing. The newly formed entity Reliance New Energy Solar Limited aims to invest US$10bn in clean energy, adding significant capacity at every vertical in renewables and acquiring talent, experience and technology expertise. Recent acquisitions of companies such as NexWafe (a wafer manufacturer), REC Solar holdings (solar module manufacturer) and taking a 40% stake in Sterling and Wilson Solar Limited illustrate the intent to be a market leader in renewables in the long term.

It is also expected that PLI winners might use substantial sanctioned plant capacity for captive consumption in their coming solar projects. This will help reduce procurement expenses and increase overall profits significantly. The entry of conglomerates such as Reliance and Jindal into solar manufacturing gives further traction towards renewables in India.

Policy Support and Government Initiatives

This section discusses the updates over the past year on key government initiatives to support a domestic PV manufacturing industry.

Domestic Content Requirement (DCR)

The DCR mandates the use of solar cells and modules manufactured domestically as per specifications and testing requirements fixed by MNRE. Under this program, government subsidies are provided for the following schemes.

Central Public Sector Undertaking (CPSU) Scheme

The CPSU scheme was introduced in 2015 to implement 1GW of grid-connected solar PV power projects using domestic cells and modules, to be set up by CPSUs/Government of India organisations with Viability Gap Funding (VGF) to cover the cost difference between imported and domestic solar cells and modules. The government producer receives the funding through a bidding process using the VGF amount as a parameter to select the project developer. In phase 2 of the scheme, approved in 2019, the target was revised to 12GW by FY2022/23. The Indian government sanctioned VGF support of Rs 85,800m for phase 2, capping funding at Rs 7m/MW.

Under MNRE guidelines for implementation of phase 2, the power generated by the government producers can be used on payment of mutually agreed usage charges of not more than Rs 2.45/kWh for self-use or use by the Government or its entities, directly or through discoms. The maximum permissible VGF was later reduced to Rs 5.5m/MW, via an amendment from MNRE.

Of the targeted 12GW capacity, 9.5GW of aggregate capacity has been tendered by multiple authorities (SECI, NTPC, IREDA and APDCL). So far, 7GW of the tendered capacity have been allotted, of which ~53% has been allotted to NTPC.

                                                          …To be continued

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Jyoti Gulia is the Founder of JMK Research. Jyoti has about 15 years of rich experience in the Indian renewable sector. Her core expertise includes policy and regulatory advocacy,
assessing market trends, and advising companies on their business strategy.

 

 

 

Prabhakar Sharma is a Senior Research Associate at JMK Research with expertise in tracking renewable energy and battery storage sector. He has previously worked with Amplus Solar.

 

 

 

Akhil Thayillam is a Research Associate at JMK Research. Akhil is a renewable sector enthusiast with experience in tracking new sector trends as well as policy and regulatory
developments.

 

 

 

Energy Economist Vibhuti Garg has advised private and public sector clients on commercial and market entry strategies, investment diligence on power projects and the impact of power sector performance on state finances. She also works on international energy governance, energy transition, energy access, reallocation of fossil fuel subsidy expenditure to clean energy, energy pricing and tariff reforms.

JMK Research & Analytics is a boutique consulting firm for all kinds of research and advisory services for Indian and International clients focusing on Renewables, Electric
mobility, and the Battery storage market. For further information: contact@jmkresearch.com