The Indian government has come up with several initiatives to encourage domestic solar manufacturing. In April this year, the Union Cabinet approved the production-linked incentive (PLI) program to push gigawatt-scale manufacturing of high-efficiency solar photovoltaic (PV) modules with an outlay of ₹45 billion (~$605 million). The general perception is that this program is meant for the larger investors and will not help smaller manufacturers.

The program started off as a move to mitigate future global supply chain disruptions by establishing a robust domestic ecosystem for solar manufacturing. But now, the same supply chain disruptions are cramping the growth of the domestic industry.

Local manufacturers are grappling to bridge the demand-supply gap and manage the rise in prices of commodities and components. The disruptions have a higher adverse impact on smaller manufacturers who lack the advantage of scale.

Raw material prices affecting solar supply chain

For a long time, the solar supply chain was dominated by Chinese players. But now, things are changing, and many domestic players are looking to scale up their production lines. However, smaller manufacturers especially face a host of challenges.

Speaking on the plight of domestic manufacturers, Pramod Sirohiya, Managing Director of Senza Solar, said, “Many issues are coming up in the manufacturing sector. The increase in freight charges is one such issue. The costs have gone up from $800 (~₹59,314) per container to $9,000 (~₹667,288), and it is not expected to go down any soon. The shortage of containers is another issue, creating problems in importing raw materials from China.”

Sirohiya also voiced concern over the rising prices of raw materials in the last six months. “The cost of the aluminum profile has gone up by 30-40% in the last three months. The prices of silicon and the EVA sheets have also gone up by 40-50%.”

Cell manufacturing is likely to pick up soon

With over 30 GW of solar installations projected over the next 2-3 years, the need for a robust solar supply chain is vital. India still does not have wafer manufacturing capacity. Most of the raw materials – wafers, ingots, aluminum, and copper are imported from China.

Given the reliance on imported raw materials, many believe that manufacturers in India are merely assemblers. Government initiatives have failed to catalyze the indigenization process of the domestic manufacturing sector. Besides the policy and regulatory hurdles, economic and technology risks have acted as a deterrent for the growth of the solar manufacturing ecosystem.

Shedding light on the domestic manufacturing capacity and what the future holds, Bharat Bhut, Co-founder and Director, Goldi Solar, said, “Many companies in India are planning for cell manufacturing. It will take around a year to develop 5-8 GW capacity in the country. It will take time for backward integration from cells to wafers to polysilicon. Currently, the raw materials required for solar cell lines are wafers, silver, and aluminum paste. Silver paste and wafers are being procured from outside as we do not have an in-house ecosystem.”

According to Bhut, while the bigger companies are expanding, the medium-size ones are unable to as technology upgradation requires capital. “You have to keep changing the equipment with changing technology. The PLI program is a good initiative at the macro level, and the bigger players will benefit from it. It will create the much-required polysilicon to module manufacturing ecosystem in the country.”

Stressing that Indian module manufacturers are well-equipped to meet the domestic demand, he said domestic developers could rely on Indian manufacturers for modules. “Despite the disruptions in the supply chain, the module manufacturing business is doing well. We are just assemblers now, and that has been the case for the last ten years.”

He said that the alignment of policies at the center and the states is the need of the hour.

Sharing similar views, Harsh Jain, Director, Citizen Solar, said, “The implementation of the PLI program will provide a big impetus to the manufacturing ecosystem. May big players, like Jupiter Solar, Goldi Solar, and others, are planning to expand their manufacturing lines, and we will have a robust manufacturing base in the next two to three years. The module prices have been on an upward trend in the last six months. For raw materials, we are completely dependent on China, and the prices like glass, junction boxes, aluminum, copper, and others have been increasing and are showing no signs of abating.”

“Currently, EPC companies are buying modules at ₹21 (~$0.28)/W (poly) and ₹23 (~$0.31)/W (mono), which was nearly ₹18 (~$0.24)/Wp some six months back. The module prices have gone up by 25% in the last six months. The prices of solar cells have started to come down, but it will take some time before normalcy returns. The solar cell prices have come down from $0.55 (~₹40.73)/cell to $0.51 (~₹37.77)/cell, but it is still on the higher side,” he added.

Need for a duty framework in place

Domestic module manufacturing may be coming of age, but the availability of raw materials remains a concern. Stakeholders believe that a competitive duty regime needs to be implemented to give the domestic manufacturers a level playing field alongside cheap imports. The manufacturers are pinning their hopes on the Basic Customs Duty (BCD) imposition next year.

“The cell manufacturers are getting wafers from China. If we have the wafer-making capacity in India, we will need ingots, and if we start making ingots, we will have to start making polysilicon. This is how the supply chain works. Right now, we have to start from scratch. Currently, we do not have a duty on modules, but we have to pay duty on raw materials, which is unfair to domestic manufacturers. Module manufacturers are facing big problems. The raw material prices have skyrocketed, and the transportation cost has also increased to $9,000 (~₹667,288) per container,” said Avinash Hiranandani, CEO and Managing Director of RenewSys India.

“If the BCD is not implemented next year, then everything will collapse. There has to be some protection for domestic manufacturers. The ALMM (Approved List of Models and Manufacturers) has also not been fully implemented. We can live on hope, and if they do not implement BCD next year, it will be a big blow,” added Hiranandani.

Highlighting the need to remove the anti-dumping duty imposed on the import of raw materials from China, Jain noted, “As a result of the hike in solar cell prices, many module manufacturers have reduced their production capacities. We have reduced our capacity to 15,000 modules per month, and many leading manufacturers have also done the same. One thing that is a big impediment is the imposition of anti-dumping duty on raw materials and no anti-dumping duty on finished solar panels. There is no rationale behind this decision. The government should seriously think about removing the anti-dumping duty on raw materials also. That would be helpful for everyone.”

Technology and innovation

To compete globally, India needs to focus on developing indigenous technologies.  Currently none of the solar technologies in the market are developed in India.

A module manufacturer said, “We are only following the Chinese technology that is more than three years old. As the Chinese change their technology every three to four years, it will be a big problem for Indian companies to cope. If the Indian companies want to match the Chinese, they have to come up with their own technology, or else they will have to buy the whole production line, manufacturing process, along with raw materials every five years.”

Regarding the need to have tie-ups with universities and government labs, Jain stressed that we should have technology collaborations with the leading universities in the country. Only then can we compete with the technological innovations taking place across the globe in solar space.

“The Chinese manufacturers have started supplying 550 Wp modules. In India, it will take some time before we start producing 550 Wp modules. Technology upgradation cannot happen overnight, and it takes time. To compete with the latest technologies, we need to have tie-ups with government labs and universities; only then can there be real technological development. Currently, we don’t have any such arrangement. But I think things are moving in the right direction, and in the next two to three years, we will be sitting on a manufacturing capacity of 75 GW per year, and it is not farfetched. The certification system is also flawed. Here, we do not have a certification system for solar cells, but we have a certification system for modules, which speaks volumes of the approach in our country,” Jain added.