Mumbai, December 20, 2024: According to CareEdge Ratings, India’s solar equipment manufacturing capacity is poised for a healthy growth over the next 2-3 years, with module and cell manufacturing capacity of ~80 GW and ~50 GW respectively in the pipeline. This will entail a capex of nearly Rs 1 lakh crore with an estimated debt funding of nearly Rs 70,000 crore over the medium term, including investments in polysilicon and wafer capacities.
India’s module and cell capacity stood at ~70 GW and ~8 GW respectively as of March 2024, although high efficiency module capacity is only 50 GW. The capacity enlisted under the Approved List of Models and Manufacturers for modules (ALMM-I) reached 60 GW as of September 2024, although a large section is in the ramp up phase, thus barely sufficing to meet the domestic module requirement. The accelerated growth over the last 12 months has been an outcome of the growing ESG focus of corporates, buoyant investor interest, proactive policy support, and enhanced availability of financing avenues.
CareEdge Ratings says that capacity addition plans of ~80 GW by leading module manufacturers will entail a capex of nearly Rs ~12,000 crore over the next 2-3 years. Domestic cell capacity is expected to witness commensurate growth to reach 60 GW by FY27 with ~Rs 30,000 crore worth of investments by major players over the next 2-3 years on the back of strong policy support for progressive backward integration. The resultant capacity growth will make India a surplus market, given the annual module requirement of 40-50 GW, necessitating that the domestic players tap the export markets
CareEdge Ratings believes that solar segment will significantly help in India’s renewable capacity growth. India’s RE capacity stood at 155 GW as of September 2024, with the solar segment being the largest contributor at 91 GW on the back of significant capacity additions over the past 7-8 years. The rising share of RE capacity has been on account of strong policy focus, improving tariff competitiveness, and strong investor interest. While India installed 18.5 GW of RE capacity in FY24, CareEdge Ratings expects the annual RE installations to surpass 35 GW over the next two years primarily supported by a healthy pipeline of more than 100 GW.
The growth in solar capacity in the medium term will be driven by annual tendering target of 50 GW RE capacity through renewable energy implementing agencies, majority of which are expected from solar. Sizeable capacity additions of ~20 GW will be contributed through rooftop solar, hybrid solar component, and off-grid solar over the next 2-3 years. This apart, solar open access capacities of 4-5 GW are likely to be added annually over the next 2-3 years, aided by ESG commitments of corporates and improving economic viability of C&I projects.
Jatin Arya, Director, CareEdge Ratings said, “The solar equipment manufacturing sector has several tailwinds including healthy domestic demand prospects, rising export opportunities, proactive policy support, and improved lenders’ appetite for RE projects. However, lack of integrated solar equipment capacity, supply chain dependence on China, increasing competitive intensity, and delay in RE capacity additions due to systemic issues are some headwinds that remain monitorable over the medium term.”
CareEdge Ratings believes that proactive policy support through tariff and non-tariff barriers will help drive demand for Indian players. In a bid to safeguard domestic cells and modules against the predatory pricing of Chinese counterparts, the government imposed a BCD of 25% and 40% on Chinese cells and modules respectively, starting April 01, 2022. According to CareEdge Ratings report, the imposition of tariff barriers in the form of BCD on imported cells and modules has raised the cost-competitiveness of domestic cells and modules to an extent, although the impact of the same is partly offset by international prices languishing at record-low levels.
Overcapacity has forced Chinese manufacturers to dump products in export markets at very low prices, which was further exacerbated by UFLPA sanctions, meaning that surplus Chinese production was flooding non-US markets including India. As a result, the landed cost of imported module prices in India has plummeted to ~18 cents/Wp as of September 2024 from ~45 cents/Wp as of March 2022, nearly offsetting the impact of BCD. Likewise, a staggering dip in cell prices has lowered the landed cost of domestic modules from ~41 cents/Wp to ~20 cents/Wp over the same period. Although imported modules remain cheaper than domestic modules by 8-10% despite the applicable duties, non-tariff barriers and government sponsored schemes are likely to push demand towards domestic modules.
CareEdge Ratings expect the implementation of the Approved List of Models and Manufacturers for solar modules (ALMM-I) to boost demand for domestic modules, along with government-aided schemes supporting demand for modules with domestic content requirement (DCR modules). CareEdge believes that policy support for progressive backward integration remains crucial for India’s solar equipment value chain. It also says that introduction of ALMM-II for domestic cells may result in an increase in delivered cost of domestic modules by 6-7 cents/Wp, leading to rise in solar tariffs by 40-50 paise per unit for the short run till local cell supply scales up.