Why Investors Should Consider Solar Energy Manufacturing in India

Posted by Written by Melissa Cyrill Reading Time: 3 minutes

India is building up its solar energy capacity, is incentivizing domestic manufacturing, and thus needs foreign capital and know-how. In this article, we report on the government targets for renewable energy generation in India, which will be boosted by the PLI program ‘National Programme on High Efficiency Solar PV (Photo Voltic) Modules’. An additional INR 195 billion (US$2.4 billion) budget has been announced for tranche 2 of the PLI scheme.

The Indian government hopes to attract investments worth INR 940 billion for the solar energy sector and has approved additional funding for its production-linked incentives (PLI) scheme for manufacturing high-efficiency solar PV modules. India currently depends heavily on imports in the sector and seeks to build up its indigenous manufacturing capabilities and renewable energy generation capacity.

To this end, on September 21, the Cabinet approved the Ministry of New & Renewable Energy’s proposal to implement tranche 2 of the PLI Scheme with an increased outlay of INR 195 billion (US$2.43 billion).

In a statement to the media, the government said: “Solar PV manufacturers will be selected through a transparent selection process. PLI will be disbursed for five years post commissioning of solar PV manufacturing plants on sales of high-efficiency solar PV modules.”

How the PLI scheme will expand renewable energy capacity in the solar sector

The National Programme on High Efficiency Solar PV (Photo Voltic) Modules seeks to build up the indigenous manufacturing capacity of giga watt (GW) scale in high efficiency solar PV modules. The DPIIT and the Ministry of Renewable Energy (MNRE) came out with initial guidelines for companies to avail the incentives on April 28, 2021.

Currently, India’s solar power generation depends on imported solar PV cells and modules as the domestic manufacturing industry has limited capacity. The sector’s PLI scheme aims to reduce import dependency as national renewable power production is of strategic importance to India.

Breakup of the new bid for implementing second tranche

India’s renewable energy secretary Indu Shekhar Chaturvedi noted that the government’s bid design for additional allocation of INR 195 billion would facilitate 29 GW capacity of fully integrated solar PV manufacturing plants, 18 GW plants integrated from wafers to modules, and 18 GW integrated over cells and modules plants. That comes to a total capacity build of 65 GW of modules.

There are four stages in module making, namely, polysilicon, wafers, cells, and modules. At present India has 15 GW production facilities, which have no polysilicon or wafer production capacity.

Under the tranche 2 bid design there are three baskets – INR 120 billion for fully integrated capacities – polysilicon, wafers, cells, and modules; INR 45 billion for the three-stage integration from wafers to cells to modules; INR 30 billion for integration across cells and modules. The bulk of the budget allocation will be for integrated capacity build.

Manufacturers will benefit if they source their material from the domestic market as the PLI amount disbursed will increase with increased module efficiency and increased local value addition. This is so the industry does not depend on subsidies in the long-term but focus on becoming more competitive. The minimum efficiency allowed has risen by one percentage point from tranche 1 of the PLI to tranche 2.

The government introduced 25 percent import duty on solar cells and 40 percent import duty on photovoltaic modules, effective April 2, to encourage domestic manufacturing. Consequently, the government has recorded a doubling of India’s module manufacturing capacity – from 10 GW to 20 GW – and cell manufacturing capacity from 3 GW to 4.5 GW.

India needs 280-300 GW solar energy capacity addition to achieve the 500 GW target by 2030. Chaturvedi elaborated: “For the remaining years up to 2030, our domestic requirement will be 30-35 GW of modules… the commissioned capacity will meet domestic as well export requirements.”

Intended outcomes following expanded budget outlay for tranche 2

  1. An estimated 65GW manufacturing capacity of fully and partially integrated, solar PV modules to be installed each year.
  2. Attract direct investment of around INR 940 billion.
  3. Create domestic manufacturing capacity for balance of materials like EVA, solar glass, backsheet, etc.
  4. Direct employment of about 195,000 and indirect employment of around 780,000 persons.
  5. Import substitution of approximately INR1.37 trillion.
  6. Impetus for R&D to achieve higher efficiencies in solar PV modules.

Status update on the first tranche

The government approved the INR 45 billion-first tranche of the PLI scheme for the National Programme on High-Efficiency Solar PV Modules in 2021 and bids were awarded in November-December that year.

As reported in The Economic Times, the government issued letters of award for a total integrated capacity of 8.7 GW to Reliance New Energy Solar, Adani Infrastructure, and Shirdi Sai Group in the first tranche.

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