Why Indian module manufacturers are not cost-competitive as comparative the Chinese manufacturers
India is one of the world’s leading solar markets, with ambitious renewable energy targets. However, more than 80% of solar equipment used in power projects is imported from Asian countries such as China, Vietnam, and Malaysia. India’s domestic manufacturing capacity for cells and modules is largely underutilized, standing at only 4GW and ~12GW, respectively, because of higher costs, which are 10-15% more than that of imported cells and modules. The high production costs can be attributed to factors such as a lack of manufacturing capacity for ingots and wafers, small scale of operations, and higher capital expenditure for plants made before 2010 with high-interest costs.
Overdependence on cheaper but superior imported equipment exposes the Indian industry to variability of prices, currency fluctuations, and trade account imbalance. The recent impact of the global energy crisis had an influence on China’s solar industry, with power supply to cities that are module manufacturing hubs being curtailed. This disrupted operations and pushed up the price of imported mono PERC PV modules in India, resulting in a 30-35% increase in solar project costs for India and led to delays in ordering solar modules and cells by developers of solar projects.
Over the years, the government has introduced measures such as Domestic Content Requirement (DCR) in 2014 and safeguard duties in 2018 to guard domestic module manufacturing companies and lower the influence of cheaper imports. However, these measures have seen limited success in strengthening and flourishing the domestic solar equipment industry due to continuous dumping of relatively cheaper modules by Chinese players.
To provide a boost to domestic production, the government introduced manufacturing-linked solar development tenders in 2019. The Solar Energy Corporation of India (SECI) issued a project development tender for 12GW of solar generation capacity and a tied contract for 3GW of domestic module manufacturing capacity. These were won by Adani Green and Azure Power at a winning tariff of INR2.92 (~$0.04)/kWh.
Further, in April 2021, the government approved the Production-Linked Incentive (PLI) scheme for the solar PV manufacturing sector, with INR44.5bn allocated by the Ministry of New and Renewable Energy (MNRE) for investment in high-efficiency solar PV modules. This was later enhanced to INR240bn in the FY22 budget. The Indian Renewable Energy Agency (IREDA) has conducted an auction for a fully integrated polysilicon to PV modules manufacturing capacity of 10GW p.a, with priority given to interested manufacturers with the lowest requirement of corresponding incentives.
Overall, lack of scale and integration in the PV manufacturing industry are critical barriers to India’s solarisation program. However, with the introduction of schemes such as PLI and manufacturing-linked solar development tenders, the Indian government is making strides in boosting domestic production and reducing reliance on imported equipment.
Barriers to Domestic Solar Equipment Manufacturing in India
|Lack of manufacturing capacity for ingots and wafers||India has limited manufacturing capacity for ingots and wafers, the upstream stages of polysilicon.|
|Small scale of operations||Domestic manufacturers operate on a smaller scale, which does not allow them to benefit from economies of scale.|
|Higher capital expenditure||Plants made before 2010 have higher capital expenditure and high-interest costs, increasing production costs.|
|Dumping of cheaper modules by Chinese players||The continuous dumping of relatively cheaper modules by Chinese players has limited the success of measures introduced to strengthen and flourish the domestic solar equipment industry.|
Here are the five major reasons for the cost difference in the Indian and Chinese module manufacturers’ cost
- India’s domestic manufacturing capacity for cells and modules is largely underutilized because of their higher costs compared to imported cells and modules, which are mostly sourced from China, Vietnam, and Malaysia.
- Lack of manufacturing capacity for ingots and wafers, small scale of operations that does not allow firms to benefit from economies of scale, and higher capital expenditure for plants made before 2010 with high-interest costs have increased production costs, making cells and modules uncompetitive compared to Chinese rivals.
- The recent impact of the global energy crisis has had an influence on China’s solar industry, with power supply to cities that are module manufacturing hubs being curtailed. This has disrupted operations and pushed up the price of imported mono PERC PV modules in India.
- The price of imported mono PERC PV modules in India was 22-23 cents/watt in June 2021, 15-20% up from 19-20 cents/watt in December 2020. It further went up to 27-28 cents/watt in October 2021 and is now at 30-32 cents/watt as of May 2022.
- With the imposition of duties on solar cells (25%) and modules (40%), the cost of imported solar modules is expected to increase to 0.39-0.41 cents/watt (INR31mn/MW), which would be expensive compared to indigenous equipment and manufactured modules that come at 0.35cents/watt (INR28mn/MW).