Indian solar firms stare at cost hikes as China cuts rebates on key components

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Starting December 1, Indian solar companies may have to shell out extra for key photovoltaic products such as solar panels, cells and related components. This could drive up project costs for the developers reaping the benefits of cheaper imports.

On November 18, the Chinese government announced a rebate reduction on some exports, including photovoltaic products, from 13 percent to 9 percent. The downward tax adjustment could result in a 0.02-0.03 yuan-per-watt increase in solar module prices for overseas buyers, Reuters reported citing a note from Citi analyst Pierre Lau. The move is seen as a strategy by the Chinese government to tackle the current overcapacity, as the companies produced far more than the market requirement, leading to bankruptcies and consolidations in the sector.

So far, the supply glut in China has driven down module prices globally, improving the cost economics for Indian developers who saw the average cost of large-scale solar projects falling by 25 percent year on year in the second quarter of 2024, according to data from market research firm Mercom.

However, China's efforts to curb losses for its component manufacturers could drive up costs for Indian developers.

"This move could raise costs for the upcoming projects as the ongoing ones would have already been contracted. But this could improve competitiveness, especially for component makers in Europe," said Raju Kumar, EY India Energy Tax Leader.

India remains extensively reliant on imports of both cells (about 81 percent of the demand in FY24) and modules (about 23 percent of the need in FY24), with the major source of imports remaining geopolitically sensitive China, according to data from SBI Market Caps. India has nearly 70 gigawatt of module capacity and about 8 gigawatt of cell capacity as of March 2024, with the annual average solar capacity additions of nearly 21 gigawatt on Direct Current (DC) basis witnessed over the last two years. While module capacity appears sufficient for 3+ years of demand at the current rate, cell capacity (8 GW) is significantly inadequate.

Solar developers’ dependency on China 

NTPC Green Energy, one of the largest renewable energy public sector enterprises in India by operational capacity (excluding hydro), imports solar module cells and wind turbine generators from China. About 18 percent of the cost of supplies is for components imported from China. "Restrictions on solar equipment and wind turbine generator imports and other factors affecting the price or availability of solar equipment may increase our business costs," the company said in its Draft Red Herring Prospectus (DRHP) document. The company's initial public offer, which is open till November 22, was subscribed 33 percent on opening day.

Similarly, solar panel manufacturer Waaree Energies imports 90 percent of its raw materials, especially solar cells, from countries including China, Vietnam, Malaysia and Thailand, according to its DHRP, with materials from China accounting for 54.08 percent of its imports. In an interview with Moneycontrol, Waaree Managing Director Hiten Doshi said the company is closely watching export controls originating from China.

On the other hand, Waaree is looking at reducing its import dependency through backward integration measures. The company is constructing a 5.4 GW solar cell manufacturing facility in Gujarat, which is expected to be operational by the end of fiscal 2025.

Similarly, renewable energy firm Acme Solar sources 65 percent of its total procurement from components primarily originating in China.

"The reduction in export tax rebate on Chinese solar cells and modules from 13% to 9% could prompt a nominal price increase in international module prices as Chinese control the majority of solar equipment supply chain. As India has imposed non-tariff barriers in the form of ALMM, it is unlikely that there will be any significant procurement of modules from China. Although Chinese cell prices may witness a marginal increase, the overall solar equipment prices are expected to remain around current levels given the significant overcapacity situation in China," said Mayuresh Karavade, Assistant Director, CareEdge Ratings.