ANALYSIS India closes 2025 with a solar capacity glut, faces utilisation, margin test next year

Investment bank DAM Capital sees cumulative solar module manufacturing capacity to surge to 192 GW by the end of FY28, outpacing domestic demand, potentially pushing the industry into an oversupply regime as early as FY26E.

It anticipates India‘s solar cell capacity to jump from ~17 GW in FY25 to ~45 GW by FY26E and further to ~113 GW by FY28E.

"Once these capacities come online, the current supply tightness, and the premium pricing and elevated ROIC (Return on Invested Capital) it has supported, will fade," DAM analyst Kunal Shah wrote in the research report earlier this month.

London-based consultancy firm Wood Mackenzie called it a 'perfect storm in the Indian solar supply chain' and flagged a substantial inventory build-up of 29 GW by the third quarter of 2025.

Tariffs impact

The recent imposition of US tariffs has adversely impacted export volumes, posing new challenges for the industry as the modules have been redirected from the export market to the domestic market. Wood Mackenzie’s latest analysis shows that the new 50 percent tariffs imposed by the US have significantly impacted India's export momentum, with module exports to the US falling 52 percent in the first half of 2025, compared to the same period in 2024.

Indian firms like Adani's Mundra Solar, Waaree Energies and Premier Energies are among the leading exporters to the US. “The challenge has shifted from building capacity to achieving cost-competitiveness and diversifying export markets," said Yana Hryshko, Head of Solar Supply Chain Research at Wood Mackenzie.

DAM Capital listed key investor concerns for domestic PV manufactures as -- where would the existing module and cell margins stabilise, and growth visibility beyond the traditional module and cell segment.

"The recent imposition of tariffs by the US and the growing regulatory uncertainty in the US are likely to dampen export volumes, potentially exerting pricing pressures on domestic OEMs. Given that the ALMM requirement for solar cells is effective from June 2026, a significant scale-up in the cell manufacturing capacity along with its stabilisation in a timely manner remains critical in the near term.

Further, the cost of modules using domestic cells is expected to be higher by 3-4 cents/watt compared to the cost of the domestic modules using imported cells," said Ankit Jain, Vice President & Co-Group Head - Corporate Ratings, ICRA.

SECI solar awards 

Tender awards for renewable energy projects by the Solar Energy Corporation of India (SECI), India's nodal agency for the commissioning of renewable energy, has been largely flat, posing another threat to margins of module manufacturers. However, tender awards for solar projects has increased over the past two years.

For FY24, SECI awarded tenders for 4.5 GW across India for solar power projects, out of the total tender awards of 8.44 GW. In contrast, SECI awarded solar projects with a total capacity of 5.7 GW in FY25, but total tender awards for the year were 8.46 GW. In FY25, tenders issued by SECI were 9.4 GW, but actual awards were 8.46 GW, owing to lower tender awards in wind, hybrid, and related projects.

The mandate of SECI has also been extended to all renewable energy projects, not just solar, with its recent annual reports also indicating that a large part of its future tenders are expected in the form of hybrid projects, blending solar and wind energy, while it will continue to award pure solar and wind tenders.

Consolidation inevitable for smaller players

Analysts flagged that the looming demand–supply mismatch is poised to place a significant downward pressure on module prices from FY27E onward, and materially weaken return ratios for pure-play module assembly businesses.

With the rollout of ALCM (Approved List of Cell Manufacturers), the market is expected to shift decisively towards modules built using domestically manufactured cells. Under this new requirement, manufacturers lacking integrated cell capacity will find it increasingly difficult to remain competitive. As a result, an estimated ~18 GW of smaller and marginal module players could be forced out of the market, accelerating consolidation around cost-efficient, fully backward-integrated manufacturers, according to DAM Capital.

Industry leaders like Waaree and Premier could be left unscathed as they already advanced into ingot-wafer manufacturing, securing a 3–4-year lead.

Separately, Reliance Industries is building a fully integrated solar supply chain at its Jamnagar Giga Complex with plans for 20 GW of module capacity by 2026, while Adani Solar is developing a vertically integrated manufacturing ecosystem at Mundra covering the entire value chain from metallurgical silicon to modules, targeting 10 GW capacity by 2027 to reduce India’s reliance on China.

Coupled with strong balance sheets, scale advantages, and early moves into horizontal diversification, industry leaders would continue to stand at the forefront of India‘s solar manufacturing transformation and sustain their premium valuation multiples in our view, DAM Capital added.

How solar stocks have done

Renewable energy stocks have been a darling of the stock markets since the end of the pandemic, as Union and state governments pour capital expenditure into renewable energy, along with production-linked incentives.

Waaree Energies listed at a 66 percent premium over its issue price last year in October, and has been one of the main beneficiaries of the exuberance of renewable stocks in the markets. The stock has continued to be in the green over its listed price, trading 2.6 percent higher since January 2025.

Even as investors have expressed concerns about looming overcapacity in the domestic market, Waaree noted its manufacturing facilities in the US, which shields it from trade actions by the Trump administration. The company has also announced plans to backward-integrate in solar module manufacturing, and is readying capex in the energy storage space.

Others, such as Vikram Solar, have followed Waaree to the public markets, but its stock is down nearly 35 percent since its listing earlier this year. Seeking to assuage investors, Vikram Solar's management said that it is not looking to the US as an export market.