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solar power: Has the sun finally started shining on India’s solar industry?


For long, India has been utterly dependent on China for solar energy equipment. With nearly 90% of it being imported from China, India has been in a hurry to build up domestic manufacturing capacity under Make-in-India programme and with the ambitious scheme of Production-linked Incentives (PLI).

Now, India’s solar economy seems to be slipping out of China’s grip. India’s solar module imports from China reduced nearly 80% by $2 billion in the first half of 2023, according to Chinese export figures collated by energy think tank Ember. The total solar module imports declined 76% to 2.3 GW between January and June 2023 from 9.8 GW in a similar period from a year ago, according to an ET analysis of Ember’s data, A report by the New Delhi-based Global Trade Research Initiative says the imports of solar cells, parts and diodes from China dropped 70.9% in 2022-23.

The Chinese supremacy
China supplies nearly three quarters of the world’s solar panels. It had an early mover advantage when it started to grow its solar industry more than a decade ago. It established an end-to-end supply chain — the country now makes most of the world’s polysilicon, a key material in solar panels — and ignored pleas by environmentalists to close coal plants that supply the cheap electricity needed to make solar equipment, as per a Bloomberg report. It also kept its labor costs lower than those in most industrial countries and has been willing to prop up unprofitable operations.
U.S. companies, which 20 years ago made 22% of them, now produce just 1% on American soil, according to Jenny Chase, head of solar analysis at BloombergNEF. At one point there were 75 major solar parts factories in the U.S., a number that was expected to grow as the industry flourished. Most have since been shuttered, unable to face the Chinese onslaught.

How India is weaning itself off from Chinese imports

Just as the rest of the world depends on China for solar energy equipment, so does India, more so because the government has been trying to ramp up production of renewable energy in India in recent times. Chinese imports ensured that India’s local solar manufacturing didn’t strike roots due to ultra cheap prices of imports form China which has a huge advantage due to massive scale as well as a robust end-to-end supply chain it has created.Then how did India’s solar module imports from China reduce nearly 80% in the first half of 2023? What moved the needle was the duties India imposed on Chinese imports. In April 2022, it levied a basic customs duty of 40% on solar modules and 25% on cells. But that wasn’t the only reason. As demand rises steeply, even high duties won’t dent the volume of Chinese imports much due to low local manufcauring capacity. Moreover, a drastic reduction in Chinese imports due to duties hampers the hectic pace at which India is building its solar energy projects.

The Ministry of New and Renewable Energy made the Approved List of Models and Manufacturers (ALMM) compulsory besides imposing the duties. This helped engineering, procurement and construction companies looking to procure from India. The ALMM is a list of models and manufacturers of solar photovoltaic (PV) modules put out by the ministry. Rules mandate that government or government-backed projects should use only these models and manufacturers of solar PV modules, thus shutting out solar module imported from China. Today, the list has about 66 manufacturers.

The PLI scheme is expected to create around 48 GW domestic module manufacturing capacity within the next three years. A total integrated capacity of 8,737 MW was allocated under Tranche-I of the scheme in November-December, 2022. The government allocated a total capacity of 39,600 MW of domestic solar PV module manufacturing capacity to 11 companies, with a total outlay of Rs. 14,007 crore under the Production Linked Incentive Scheme for High Efficiency Solar PV Modules (Tranche-II). Manufacturing capacity totaling 7400 MW is expected to become operational by October 2024, 16,800 MW capacity by April 2025 and the balance 15,400 MW capacity by April 2026. Tranche-II is expected to bring in an investment of Rs. 93,041 crore.

Considering the two tranches together, the total domestic solar PV module manufacturing capacity allocated under the PLI scheme is 48,337 MW, with a cumulative support of more than Rs. 18,500 crore by the government.

Challenges ahead
Though India’s solar industry is now showing encouraging signs of growth, it will have to work harder to face the challenge of reducing Chinese imports while not hurting local solar capacity building which gets hit when cheap Chinese imports are not available as much as required and local indsutry can’t meet the steep demand. That’s why the government has suspended the ALMM till March 2024, the list of manufacturers which were the sole suppliers for government and government-funded projects.

A new challenge at present is the historic lows hit by prices of Chinese solar modules, mainly due to a spike in production of polysilicon and oversupply in the European market. While this is a good news for India since it will help India’s efforts to create solar power capacity at an rapid pace, it will also further hit locally made quipment since ultra-low Chinese imports drive them out of the market.

Weaning India off cheap Chinese solar imports must be seen as a long-term project which requires the government to face the challenges with nifty policies. The recent downturn in imports is certainly a ray of hope.


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