Indian solar manufacturers forced to export as developers prefer imports: Industry stakeholders

A number of smaller solar manufacturing companies have sprung up in India in just about two-three years. The majority of them are currently sitting on the fence awaiting the implementation of the ALMM to enter the domestic market.

Despite trade barriers such as imposition of basic customs duty (BCD), Indian solar manufacturers are being forced to export most of their products due to the high level of imports of solar modules and cells.

Take the example of India’s largest solar module manufacturer, Waaree Energies Ltd; the company recently increased its capacity of solar module manufacturing to 12 gigawatts (GW) and is expected to produce about 9 GW of modules this year. Of the 9 GW, 3.5-4 GW is being exported.

Another example: Adani Solar, which has an installed capacity of 4 GW, will produce about 3.8 GW solar modules this year, of which 3-3.1 GW will be exported.

Overall, India exported solar cells and modules worth Rs 3,860 crore between April and June, according to data from the ministry of commerce. This is an increase of 1,669 percent from Rs 218.2 crore during the same period last year, as per Mercom India Research.

The United States remained the top buyer of Indian solar products, accounting for 98.5 percent of total solar exports. The US is rapidly increasing its renewable energy capacity and has strict restrictions on module imports from China, which gives India's growing solar manufacturing capacity a market outside the country, despite availability of cheap imports from China.

Boosted by production linked incentive (PLI) schemes, India’s domestic solar module manufacturing capacity has crossed the 40 GW mark and is expected to reach 50 GW by next year and 95-100 GW by 2026.

Why the duty isn’t deterring imports

To cut imports and boost local manufacturing, India started levying a basic customs duty of 40 percent on solar modules and 25 percent on solar cells from April 2022. But clearly, the move has not boosted indigenous solar manufacturing, even as installations of solar projects continue to grow.

“The reasons why BCD hasn’t worked in our favour are simple. First, the Chinese have reduced the prices from 26 cents to 14 cents. Second, they started routing the material through FTA (foreign trade agreement) countries such as Vietnam, Thailand and Cambodia. Third, the decision to keep the approved list of models and manufacturers (ALMM) in abeyance till March, 2024 has almost killed the domestic solar market,” said Hitesh Chimanlal Doshi, Chairman and Managing Director of Waaree Energies Ltd.

Solar module imports by India

Import data from the ministry of commerce showed that 3.43 GW solar modules worth Rs 6,856 crore were imported between April and August this year. At the same time, solar installations in the country during the same period stood at about 4.12 GW, which means domestic solar modules were, in all likelihood, used only for installations to the tune of 0.69 GW or 690 megawatts (MW).

Gyanesh Chaudhary, Chairman and Managing Director of Vikram Solar Ltd, said the industry has to grapple with sluggish clearance processes from lending institutions, intricate supply chain issues, and the delayed implementation of essential policies such as ALMM (Approved List of Models and Manufacturers—a non-tariff barrier designed to control which solar makers are allowed to enter the Indian market). “Furthermore, the influx of imports from FTA countries adds another layer of complexity, while subdued domestic demand compounds the situation,” he said. “India’s journey towards indigenising the solar manufacturing value chain will necessitate investments of approximately Rs 7.2 billion (Rs 53,773 crore) in the next 3-4 years,” he added.

Chinese modules in Vietnamese and Cambodian clothing

Industry stakeholders said countries that never exported solar modules to India, particularly FTA countries, have now started doing so and the quantum of their sales or import by India is at times, even higher than the installed capacity in the country. Also, South East Asian countries such as Malaysia and Vietnam earlier just had assembling units of Chinese solar module manufacturing companies. They were initially set up by China to avoid US sanctions. Now, Chinese companies have set up small factories in some countries, but industry insiders say their output is much more than their capacity, indicating deception. Imports from some countries have spiked, with India importing solar modules worth Rs 3,824.5 crore from Vietnam alone between April and August.

“If we look at the import and compare with last year’s data, a few countries that were not even exporting to India, like Cambodia and the United Arab Emirates (UAE), or wherever we have the FTAs, have now started exporting solar modules to India. In a short span of five months, almost 50 percent of the imported modules are coming from these countries,” said Doshi.

Hinting at a possible circumvention, he said, “A few Chinese companies have set up small factories in these countries. But the output from some of those production units is much more than the production capacity. So, that gives the idea that a lot of circumvention is happening.”

A senior official of Adani Solar, which has a current module manufacturing capacity of 4 GW, said the Chinese continue to control the global solar manufacturing market in such a way that they decrease the prices by about 40 percent overnight, making imported solar modules cheaper, sometimes even with the BCD, thereby killing the domestic market of manufacturers.

“Most domestic manufacturers don’t have a domestic market. So, they are all exporting or focusing their energies on exports. If the market is open for domestic sales, we would want to sell to India first. But right now, we are forced to look only at exports because domestically we are not able to compete with the Chinese and the FTA countries,” said the senior Adani Solar official, requesting anonymity.

Due to this, companies are now focusing on products such as rooftop solar and solar pumps, which have a mandatory component for local production under various government schemes. “The only saving grace for the domestic market for companies like Adani is the government schemes, where they give some subsidy to end users, like residential rooftop or the Kusum scheme, where farmers are being encouraged to put up solar pumps,” the official explained. “There, the government insists that there should be a domestic content, which means that the cell should be made in India. So, the demand side incentive is still in place, and China can't compete there because you need domestic content,” the official said.

ALMM must be implemented from April

Industry stakeholders said the implementation of the Approved List of Models and Manufacturers (ALMM) is the only solution to boost Indian manufacturers and the domestic market.

In March, the government kept the ALMM in abeyance for a year stating that it would not apply to any solar project commissioned before March 31, 2024. The move was aimed to boost solar project installations in India, which had suffered sluggish growth, first due to the Covid-19 pandemic and then due to the BCD.

However, the move hit domestic solar manufacturers as they now had to compete with the increased influx of imported solar modules and cells.

“We hope that the order on keeping the ALMM in abeyance won't be extended any further. Now there is enough evidence that most of the modules are still being imported. And it is not even the case that there is no manufacturing capacity in the country,” said the senior official.

Japanese electronics company Panasonic is also looking to create a solar manufacturing base in India, even as it recently shut down its production capacity for solar products at its facilities in Malaysia and Japan.

“We have plans to establish a facility through another company, which already has a unit. It will expand its manufacturing facility to produce exclusively for us as well,” said a senior official of Panasonic India, requesting anonymity.

A number of smaller solar manufacturing companies have sprung up in India in just about two-three years. The majority of them are currently sitting on the fence awaiting the implementation of the ALMM to enter the domestic market.

“To expedite the energy transition in India, we must focus on two critical pillars: expanding our manufacturing capacity and relentless investment in research and development. In this challenging landscape, we need to foster an enabling environment that empowers local manufacturers. By uniting our efforts, we can surmount these obstacles and drive the growth of the domestic solar industry,” said Vikram Solar’s Chaudhary.