The International Energy Agency (IEA) has forecast a slowdown in India’s utility-scale solar projects in 2023 and 2024 due to a module shortage, lower auction volumes, and supply chain challenges.

Supply-demand mismatch and import tariffs

India’s focus on expanding domestic manufacturing of solar modules is causing a supply-demand mismatch and higher prices in the short term, impacting the sector’s growth in 2023 and 2024. Historically, India has heavily relied on importing nearly 90% of its solar modules from China.

To address this, the government has introduced production-linked incentives to boost domestic manufacturing capabilities and reduce dependence on imports. However, in the short term, there is a shortage of high-capacity modules from large-scale top-tier manufacturers, despite the list of government-approved manufacturers implying a total capacity of 22 GW.

The introduction of higher import tariffs on modules and cells in April 2022 has further exacerbated the situation, leading to a 30-40% increase in module prices in the latter half of 2022. This has affected project bankability, resulting in project cancellations or delays as developers wait for prices to stabilize. In response, the government has postponed requirements for projects commissioned by April 2024 and extended commissioning deadlines to alleviate the challenges.

Lower auction volumes

According to the IEA, in 2022, India’s utility-scale solar capacity additions (made up mainly of capacity awarded in auctions) reached a record-breaking 14 GW, accounting for over two-thirds of renewable energy growth in the country. For 2023, however, lower auction volumes and supply chain challenges indicate a probable slowdown of almost 20%, with a possible recovery in 2024.

India’s auction volumes for renewable capacity decreased in 2022, with the country offering and awarding less than half of what it had annually during 2019-2021. Auction volumes dropped because state-level tenders prioritize signing previously awarded power purchase agreements and because developers are currently focused on completing the construction of a large-scale project pipeline.

In 2022, India awarded almost 90% of auctioned capacity thanks to policy improvements to reduce off-taker risks. Contrary to historical trends, last year, the government offered more capacity than the financially challenged state distribution companies did, and rapid implementation of the solar park program facilitated land procurement and grid connection.

Solar tenders floated by various agencies in India rose 43% quarter-over-quarter to 13.8 GW in the first quarter of 2023, according to Mercom India Research. The preceding quarter saw tenders worth 9.7 GW.

Some states that had fulfilled their renewable purchase obligations failed to organize further auctions, and federal agencies focused more on hybrid tenders. These factors have resulted in lower awarded capacity and a subsequent slowdown in capacity additions for 2023-2024.

Outlook

Despite the short-term challenges, the Indian renewable energy market is poised for significant growth beyond 2025. Higher auction volumes, lower prices, and improved policy frameworks are expected to drive a deployment boom in the sector.

In March 2023, India issued a bidding calendar for implementing agencies to increase auction capacity to 50 GW annually from FY 2023-2024 onwards.