"Make Solar in India" or "More solar in India"?

India is the fourth-largest producer of Renewable Energy and the fifth-largest solar power producer. The Year 2021 saw India add the world's third-highest renewable energy capacity. Achieving this feat has been a challenging journey. Robust and bankable government policies, a highly active Renewable Energy ministry led by a visionary Prime Minister, the mushrooming of entrepreneurs in every part of the supply chain coupled with support from Corporate India has created a self-sustaining ecosystem that will run for decades, if not generations. Until recently, the Indian solar sector was supported through imports of Solar Modules and inverters, which make up 65-75% of a project cost.

               To address the lack of domestic manufacturing competency, the Indian government introduced three decisive measures. One is a tariff barrier with a 44% Duty on importing Solar Modules and 25% on Solar Cells. Second is a fiscal incentive via a Production Linked Incentive scheme for setting up new manufacturing units. The third, a Brahmastra, is a trade barrier in the form of a list of approved module manufacturers that have manufacturing facilities in India. More importantly, only the modules made by these manufacturers can be utilised for 99% of the projects in India.

               At the time of these announcements, it felt the government had made the right decisions to help address the lack of manufacturing in India. Despite the government's best intentions, Solar module manufacturers in India seem to have utilised these protective measures, specifically the Brahmastra, to make a quick buck at the expense of the entire value chain, i.e., Developers, EPCs, Consumers and Utilities.

               I have carefully collected data from various sources to summarise my findings below.

Imported modules are 9% cheaper than Domestic Tier 1 manufacturers, even after payment of a 44% duty. However, these cheaper modules cannot be utilised in 99% of the solar projects in India due to the Brahmastra. Additionally, Tier 2 domestic manufacturers are providing a similar specification of modules at prices 5% cheaper than Tier 1 but 4% higher than Tier 1 Chinese Module suppliers. Considering solar cells attract only 25% duty, shouldn't Indian-assembled solar modules be cheaper rather than more expensive?

The increased solar project cost translates into higher solar power prices for Indian consumers. This reduces the offtake of Solar power in India, whose effects are visible. The Indian roof-top solar sector has seen a 34% reduction in capacity addition from January to September 2022 compared to the same period last year.

The overarching mission for Renewable energy, of which solar is a crucial part, is to reduce carbon emissions and slow down the pace of global warming. With 2021 and 2022 being one of the hottest years on record in the world, the need for cheaper solar modules is more prominent than before.