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The government’s move to cut dependence on China and promote local manufacturing of modules for solar installations has hindered developers as domestic supply is substantially short of demand. At the same time, domestic manufacturers see favorable policy changes as an opportunity to become global players over time.

First, the government notified that for many projects, developers could only use solar modules manufactured by a recognized firm under the Approved List of Models and Manufacturers (ALMM). So far, only domestic firms have been enlisted in the ALMM, thus effectively barring imports from China. Additionally, the government made importing modules for any project costlier by imposing a Basic Customs Duty (BCD) of 40% on modules.

Solar developers are feeling the pinch as the shortage has inflated the prices for domestic modules, bringing them nearly at par with the prices of imported Chinese modules.

“After the imposition of BCD, the domestic module manufacturers have increased their prices, which are now comparable with the Chinese imports. Two years back, they were supplying modules at $0.22 (~₹18)/W, and now it is $0.30 (~₹24) to $0.35 (~₹28)/W, which is a sharp increase,” Rahul Tyagi, GM-Business Development, Amp Energy, said,


He pointed out that the domestic manufacturing capacity met only half of the demand, and the demand-supply mismatch has caused a price hike. “On average, we have to install nearly 20-25 GW of capacity per year, whereas the manufacturing capacity is around 10-11 GW.”

Domestic module manufacturers argue that policy changes will not deliver results overnight. They say it could take two or more years to achieve vertical integration and match supply with demand.

“It would be wrong to blame manufacturers and say they are not fulfilling the demands. We are moving in the right direction, and it’s only a matter of time before we are at par with the Chinese manufacturers in terms of technology,” Abhishek Ranjan, Deputy Manager-Quality of domestic module manufacturer Premier Energies, said.

Indian module makers must match Chinese quality

The scenario gets further complicated when the quality of modules comes into the picture. Developers have complained that the quality of domestic modules is inferior to the Chinese product, which further dents their return on investment (RoI) from current projects.

“The market has shifted to 530 Wp and 550 Wp modules, whereas the Indian manufacturers still produce 330 Wp modules, as they rely on old technology. Only a few manufacturers can supply mono,” Tyagi noted.

The manufacturers agree that it will take a few years and heavy capital investment to meet international quality standards. They said that the available quality is a result of under-investment in the manufacturing plants as the demand prospect until now did not justify pouring money into technology upgrades.

“The manufacturers should have a renewed focus on leveraging technology to reduce the cost of solar modules. Further, solar manufacturing needs significant private investment given that the whole clean energy segment requires as much as $700 billion (~₹55.73 trillion),” Gautam Mohanka, Managing Director of module manufacturing company Gautam Solar, said.

He added that apart from favorable government policies, domestic manufacturers needed to gain developers’ trust by adopting the latest technological innovations leading to product improvements.

Short-term pain for long-term gain?

Solar developers have called on the government to delay the implementation of ALMM and allow grandfathering of BCD for projects won before the rate hike to cushion the impact of the policies.

The hardships for developers will likely continue unless the government decides to roll back its policies or provide substantial relief in some other form.

Adding to the complexity is that only 18 GW of module capacity has been enlisted under ALMM, including 66 domestic module manufacturers. For the first time, 600 W and 650 W modules were added to the ALMM list by Waaree.

Further, recent projects have reflected the higher project cost in tariffs for several reasons, including supply chain constraints and shortage of raw materials and components, with ALMM contributing to it. In auctions of solar projects since 2018, when ALMM became applicable, the lowest bids have been around the ₹2.50 (~$0.034)/kWh mark. Only a few winning bidders with access to either foreign funds or low-cost debt have quoted aggressively.

Tariffs had touched an all-time low of ₹1.99 (~$0.025)/kWh in the Gujarat Urja Vikas Nigam’s auction for 500 MW of solar projects (Phase XI) before ALMM was announced.

A top official with a leading developer said, “The imposition of BCD has impacted the ongoing projects, and the total duty on modules, including the social welfare surcharge, comes to around 48%, which is a significant amount.” This is hampering the availability of cheaper loans due to narrowing profit margins from ongoing projects.

There is a lower BCD (25%) on solar cells – the raw material for module manufacturing. Many developers are importing cells to manufacture modules domestically.

A top developer, speaking anonymously, said, “We are procuring cells from the international market. We will provide the solar cells to the domestic manufacturers and have a contract at a pre-defined rate for a specific capacity on an annual basis. Importing cells makes projects viable, saving 15% on duty.”

The objective of ALMM and BCD is well-intentioned, but domestic manufacturing must travel a long distance before it can compete with foreign counterparts. While manufacturers are happy with the protectionist policies, developers feel the brunt. There is a need to find common ground that can benefit all stakeholders until India has a robust supply chain, which could take up to five years.

Promoting local module manufacturing: A timeline

  • In 2018, the Ministry of New and Renewable Energy (MNRE) issued a notification for solar cell and module manufacturers to register under the Approved List of Models and Manufacturers (ALMM).
  • The order mandated that only manufacturers enlisted in ALMM could supply the projects tendered by government agencies – mainly utility-scale projects and subsidized residential and government rooftop solar projects.
  • But later, the MNRE amended it to include all net metering projects – open access and rooftop solar projects.
  • In April 2021, MNRE issued the first list of models and module manufacturers under the ALMM order.
  • As per the notification, the ALMM concerning List-I (modules) and List-II (cells) will be applicable only for projects for which bids have been concluded on or after April 10, 2021.
  • In March 2021, MNRE announced the basic customs duty (BCD) on imported solar cells and modules starting April 1, 2022. The BCD on solar modules is 40%, and on solar cells, it is 25%.