• Manufacturers see better margins with in-house EPC for small solar projects
• About 40 small manufacturers have either just started or plan to begin EPC services
• Small module makers find EPC of up to 15 MW capacity profitable
• EPC business provides guaranteed offtake for modules, quick return on investment

Smaller solar module manufacturers are adding engineering, procurement, and construction (EPC) services to their offerings as it creates a market for their own products.

Unlike large utility-scale developers who also manufacture, these smaller manufacturers are usually behind the curve in module technology, as upgrades are capital-intensive. They typically manufacture modules with an output of under 440 watts.

Utility-scale developers use modules of higher efficiency and wattage, but government and residential projects still provide a market for these smaller firms.

According to Mercom India Research, about 40 such companies, each with a module manufacturing capacity of 100-500 MW, have taken up EPC contracts for predominantly government projects or residential installations.

Developing smaller projects of up to 15 MW capacity provides them with a market for their modules. The profitability from executing these products by leveraging in-house modules allows these companies to survive and generate capital for technological upgrades to their manufacturing lines.

This trend is more prominent in Gujarat, a state that has issued most of the nationwide residential tenders.

According to Mercom’s Q2 2022 India Solar Market Update, domestic manufacturing capacity and corresponding demand are heavily mismatched.

An industry expert explained that a manufacturer could supply modules to a developer at, say, ₹28 (~$0.34)/W and earn about ₹3 (~$0.036)/W profit. But the company can price the module slightly lower for a government tender and secure an EPC contract, which would ensure profits on modules coupled with earnings from the EPC business.

Gautam Mohanka, MD of Gautam Solar, said, “The EPC business means a guaranteed offtake of solar panels. As solar panel manufacturers are scaling their capacity, it helps to install more capacity faster and recover their capital costs quickly as a part of their capacity is booked for their own business.”

He added that the trend was a sign of Indian solar manufacturers becoming self-reliant and focusing on indigenous EPC capabilities to construct a robust solar infrastructure in the country.

The vertically integrated conglomerates like Tata and Adani, apart from big manufacturers like Waaree and Vikram Solar (with a manufacturing capacity of 5 GW and 2.5 GW, respectively), have always had integrated manufacturing and EPC businesses due to apparent synergies. The smaller manufacturers have also found a sweet spot in aligning their existing plants with the EPC business.

“Solar manufacturers have been in the EPC business for a long time but on a smaller scale. If you are also in the EPC business and get an order for 10-15 MW projects, you can use your own modules,” Avinash Hiranandani, Global CEO and MD of RenewSys, said.

Manufacturing with EPC may not be sustainable

But not everyone in the industry is convinced that combining module manufacturing and EPC by smaller companies can benefit the business in the long term.

“The product players are becoming specialists, and the EPC business is also becoming an expert job. So today you must build large capacities to gain the experience, which is impossible for smaller module manufacturing companies,” Dhruv Sharma, CEO of Jupiter Solar and President of the Indian Solar Manufacturers Association.

He added that all the big manufacturing companies focus on products as they don’t have the required financial or manufacturing bandwidth to do both. The manufacturers are pooling all their resources into the area of domain expertise. Specialization in products and focusing on the scale have become essential for domestic manufacturers rather than venturing into the EPC segment.

Hiranandani further added that the smaller manufacturing companies would soon realize that the domestic demand is going to surge and the manufacturing business by itself would be lucrative enough to demand complete attention.

The solar sector has seen significant shifts in businesses and policies, and the stakeholders are trying innovative ways to remain in business and thrive.

Entering into the EPC business is a short-term fix for smaller manufacturers. Unless they upgrade their technologies, which are becoming obsolete, and scale their manufacturing capacities, these companies could face very challenging times ahead.