Chasing the sun: Unlikely firms are betting big on solar

Part 2 of CarbonCopy’s three-part series on the solar industry explores why despite lacking scale, firms linked to a spiritual leader, ceramic tile makers and bidi manufacturers are entering solar module manufacturing. So what is in it for them?
Read Part 1 , Part 3

At first glance, Hyner looks like just another company that makes and instals solar modules.

And yet, what seems commonplace might sometimes be extraordinary. In this case, the firm, set up just last year, is a part of Sri Sri Ravi Shankar’s Art of Living Foundation.

This is not the only surprising name in the ranks of India’s solar panel manufacturers. Take a look at the latest ALMM (Approved List of Models and Manufacturers) sheet of solar module manufacturers and you will find myriad others — ceramic tile-makers from Morbi; bidi manufacturers from Raipur; textile-makers from Surat; cold storage firms from Ahmedabad; refined oil manufacturers from Haryana.

It’s relatively unsurprising that some of India’s largest conglomerates — like Adani, Tata, Reliance and Hindalco — are getting into solar module manufacturing. In a business driven by scale, these family-run groups have the capacity to invest. The first-timers, however, are a puzzle. After all, when firms from diverse sectors flock to an unconnected industry, one has to wonder about the economic returns luring them in.

Ground realities

As things stand, they are a part of a much larger puzzle. Much like the USA, India is trying to keep China out of its solar panel market. It has erected tariff walls and brought in schemes like ALMM and PLI. The first ensures solar developers in India only buy from indigenous manufacturers. The second seeks to reproduce the entire solar panel manufacturing chain — from polysilicon to finished panels — within India. How are these schemes, the Indian equivalent of the USA’s Inflation Reduction Act, faring on the ground?

Using Chinese panels to decarbonise results in India ceding an industry of the future to the Chinese, not to mention the risk of higher prices if China becomes the sole supplier. At the same time, erecting tariff walls can result in costlier modules, with consequences like more expensive power, further erosion in India’s manufacturing competitiveness, and spikes in the domestic cost of living. Which of these outcomes are we heading towards?

It’s a hard question to answer. The PLI winners — the only vertically integrated players in town — are yet to enter the market. Reliance says solar module manufacturing at its 10 GW Jamnagar gigafactory will start by the end of 2024. As for Adani, its 10 GW line is expected to come up by 2027. And then, there is Indosol. It has started a 500 MW line at its ingot-module plant — and expects to touch 10 GW by March 2026.

In the meantime, much about their plans is unknown. Some details about their plans are in the public domain. This includes updates on their progress on manufacturing plants; their product lines; acquisitions; timelines on when production will start, etc.

More qualitative details — like the thinking underlying their choices within photovoltaic technology (TopCon or HeteroJunction?); acquisitions; project economics; given the ever-present question of Chinese scale, their plans for these renewable investments (will they stick to manufacturing or diversify into generation as well?); the depth of their R&D capabilities; challenges as they start manufacturing — are, however, scarce.

In the meantime, however, the country is already seeing some puzzling patterns — like the steeply widening gap between imported and domestic panel prices over the past year; the influx of the newcomers; and a boom in module exports. 

And so, between June and September, trying to understand how India’s solar panel indigenisation push is coming along, CarbonCopy spoke to a cross-section of electricity sector executives — officials in industry bodies; policymakers; senior officials in manufacturing companies; EPC contractors; executives in discoms; solar developers; and so on.

Here is what we found.

Race to scale

Solar manufacturing is a game of scale. Take polysilicon, the starting point of module manufacturing. “If it cannot be produced at competitive prices, the domestic industry is at best going to be assembling photovoltaic products manufactured elsewhere,” wrote Bloomberg recently.

Earlier this year, when CarbonCopy went to Hyderabad, a senior manager at Indosol described the economics at work. “A 10 GW line of solar modules will need between 28,000-30,000 tonnes of polysilicon,” said the manager, who spoke to CarbonCopy on the condition of anonymity. “Today, given China’s larger scale than India, one kilo of polysilicon costs $7 in China, but $10/$11 in India.”

Local manufacturers could import polysilicon from China, but they will have to pay a higher price than Chinese manufacturers. This is partly because of import duties and partly because when a Chinese firm exports an intermediate stage like polysilicon, ingot, wafer or cell — as opposed to the finished module — it will take its costs and margins onto it. In contrast, a vertically integrated Chinese manufacturer will get these inputs at cost — and add margins, etc, only on the finished module.

“A 10 GW line of solar modules will need between 28,000-30,000 tonnes of polysilicon. Today, given China’s larger scale than India, one kilo of polysilicon costs $7 in China, but $10/$11 in India.”

said a senior manager at Indosol, who spoke to CarbonCopy on the condition of anonymity. “

With the PLI scheme, India’s trying to create vertically-integrated ‘polysilicon to module’ manufacturers. To ensure local firms develop globally competitive scale, the PLI scheme supports only a handful of firms to avoid fragmenting the manufacturing landscape. Accordingly, the biggest vertically integrated solar manufacturing facilities in the country are being erected by the three PLI winners — Reliance, Adani and Hyderabad-based Indosol — each of which has announced plans to set up 10 GW lines. Longer-term, these plants might even be boosted to 20 GW.

By the end of 2026, however, China’s Longi Green Energy aims to have a cell manufacturing capacity of 100 GW and 150 GW in photovoltaic modules. Add other Chinese manufacturers to the mix and the country’s module manufacturing scale is expected to touch 1,000 GW by end of that year. In contrast, India is aiming for a module manufacturing capacity of 160 GW by the end of 2026.

Given such numbers, are 10 GW or even 20 GW facilities — leave alone smaller ones which have to compete with local biggies like Reliance and Adani — viable? In the US, too, enough module manufacturing facilities had been proposed to boost the country’s production capacity from 15 GW at the end of 2023 to over 100 GW by the end of 2025. Given Chinese overcapacity and dropping prices, however, Wood Mackenzie analysts estimate that over 190 GW of planned new wafer, cell and module production capacity in the US has already been terminated or suspended. So why are large, medium and small Indian groups rushing into solar module manufacturing?

What does that tell us about India’s module manufacturing push?

The long game

One clutch of manufacturers are seeking to initially decarbonise their own operations.

Reliance is said to be one instance. A senior analyst CarbonCopy met in Mumbai felt Reliance wouldn’t put its panels up for sale anytime soon. “We are told they will use their RE production to decarbonise their own operations over the first 7, 8 or even ten years,” said Ashish Gupta, a senior managing partner at Axis AMC and the author of pathbreaking Credit Suisse reports like “House of Debt” in the past.

From the ground, too, there is concurrence. Saswat Das of Chennai-based Sunmeister Energy remembers being excited with the news that Reliance had acquired REC Solar in 2021. “We used to buy REC panels,” he told CarbonCopy. “Given greater quality, they used to sell at a dollar/watt when the market was at 50 cents/watt.” Das’ hope, that these modules would be more easily available in India after REC’s acquisition by Reliance, has since been dashed. “It has been four years since Reliance acquired REC,” he said. “Its local offices have been dissolved. But Reliance has not created a distribution system.”

The conglomerate’s longer term plans for its renewable production remains in the realm of speculation. There is market chatter that Reliance might replicate its Jio model, installing micro-grids free of cost in residential colonies and villages, and recover its capex through monthly power payments. 

Such a model would be tremendously disruptive, with the potential to pull away both large power consumers (who pay high power tariffs) and rural folks (who get erratic power). It’s also speculated that Reliance might get into green hydrogen or rooftop solar, but nothing conclusive has emerged so far. Reliance didn’t respond to CarbonCopy’s requests for a meeting, directing us instead towards the firm’s public announcements. 

Now turn to the second set of manufacturers and the story gets stranger.

Module muddle

Another clutch of Indian firms are exporting modules — mostly to the US. Waaree, for instance, produced 9 GW of modules in 2023 and, of that, exported 3.5-4 GW.

In the same year, Adani Solar, which has an installed capacity of 4 GW, wanted to export as much as 75% of its production.

The economics here needs to be understood. In the file notings described in the first part of this series, former Union minister of power RK Singh pegged the value of Chinese (solar) cells at 6 cents/watt. With a 25% import duty, their landed cost in India swells to 7.5 cents. In his notings, Singh pegged fabrication cost between 7-8 cents. “Therefore, the modules should be available for 16 cents; however, the module manufacturers are charging 23-24 cents,” he wrote.

His notings were written as FY24 drew to a close. Since then, the price of Chinese cells has dropped to 4 cents. With that, as industry tracker Wood Mackenzie reported, the price of Chinese modules now stands at 11 cents/watt. In contrast, the price of American-made modules stands between 25 cents and 27.5 cents.

And yet, given import barriers, Chinese panels are unable to enter the US market. For a while, the middle kingdom tried to ship them through countries like Cambodia, Malaysia, Thailand and Vietnam, but the US is now cracking down on those as well. 

One fallout? Something akin to the Russian oil trade is playing out in India’s solar modules sector as well. Module components from China also reach India, get assembled into solar modules, and are thereafter shipped to the US. This is what Waaree did. It shipped panels comprising cells produced in Longi’s factories in South-East Asia to the US.

Some of these cells might even have, as Bloomberg reported this February, used polysilicon made in Uyghur labour camps in Xinxiang. For its part, Waaree denied the charges. Waaree didn’t didn’t respond to CarbonCopy’s requests for a meeting.

Back of the envelope calculations, however, show why such an approach might be competitive. A firm can buy cells from China at, say, 6 cents; spend another 8 cents for fabrication; and end up with a factory gate price of 14 cents, well below the US price of 27 cents.

Assembly line shuffle

Given ALMM, most manufacturers import cells from China, but assemble modules locally. 

Strangely, over the past two years, despite the drop in solar cell costs — which account for 60% of a module’s cost — the prices of Indian modules have climbed. 

Protectionism is one part of the answer. Apart from cells, modules need solar glass, the aluminium frames to which the panels are clamped, silver to solder cells together, and plastic that glue everything together. India now has import tariffs on cells and a basic Customs duty on glass. Anti-dumping duties have been mooted on aluminium frames as well. With that, as the costs of imported components grew, domestic players have hiked prices.

“The minute you come out with policies like an approved manufacturers list and exclude foreign companies, you create the conditions for profiteering and profit booking.”

said a former solar developer in Bangalore.

As Indian Express reported in August, prices of locally manufactured modules have almost doubled over the past two years. “Domestic solar modules are now 90% more expensive than imports, with prices reaching 18 cents per watt in June compared to 9.1 cents for imported modules,” said the paper. “This gap has widened since FY22, when domestic prices were 6% higher than imports.”

This is the walled garden effect, said a former solar developer in Bangalore. “The minute you come out with policies like an approved manufacturers list and exclude foreign companies, you create the conditions for profiteering and profit booking.” A firm that gets its components for, say, 10 cents (Cell = 60% of module cost = 6 cents/watt), but sells at 24 cents, bags a 140% margin on value addition. Even deducting 6 cents for other costs like logistics, loan repayments and taxes, it will still be left with 10 cents. That is a 66% margin.

This is one fallout of ALMM. Even though Chinese modules are now entering India at 14 cents (10 cents/watt as the price and 40% as import duties), they cannot access the bulk of the Indian market. Local firms have a free hand. 

Such margins — coupled with the lure of government protection — is what has brought the first-timers rushing in. 

Lax regulation has helped. Even non-solar firms — like LED makers and those selling printing machinery — have been approved for ALMM. With that, an ecosystem has emerged to serve them. Firms like Jinchen from China and Ecoprogetti from Italy are setting up assembly lines. Jinchen alone holds 10 GW of solar production line orders from India.

Supervision has been lax as well. Modules come with IEC certification — International Electrotechnical Commission, an international body with certifying arms in India. “This paperwork is then scrutinised by BIS before a firm is listed in ALMM,” said a Chennai-based industry sales manager who spoke on the condition of anonymity. “But there is no testing after two or so years to see if the claimed cell performance, for example, is being delivered.”

The result? This stampede into the sector. “About 20-30% of these are MSMEs, trying to gain from government incentives for small firms,” added a partner at a Bangalore-based solar energy equipment supplier, on the condition of anonymity. “Another 30% are unknown firms set up by diamond merchants, real estate firms and the rest. If they don’t get returns in three years, they will exit. The remaining 50% is established firms like Adani, RIL, Greenko, etc.” Between high prices, uncertain quality and the hope ALMM will be rescinded, however, demand has stayed low. 

In response, one set of manufacturers – “those with political links,” said multiple industry officials – are pushing modules into government schemes like Kusum and rooftop solar. A second set is selling overseas, despite greater competition, higher costs and consequently lower margins there. 

A third set, firms which entered seeing others make a killing, is competing on price, often at the cost of quality. “When we check the samples, a 550 Wp solar module is giving the rated wattage,” a developer told MercomIndia. “But when we use them in the project, they give less wattage.” ALMM, said the Chennai-based sales manager, should review installed panels’ performance every two or so years.  

Along the way, the Indian solar market is cleaved into two. The country’s production of high quality modules, estimated by IEEFA, stands at just 20-22 GW — less than half of the current installed manufacturing capacity of 60 GW.

Sunny side up?

We are back to the question we started with. How are India’s efforts to supplant China in its domestic market coming along? One could point to the steady accretion of manufacturing scale within India, export numbers, or acquisitions like that of REC Solar, to say the country is on the right track.

One could also argue that countries like China, too, built capacities in emerging sectors by insisting on local sourcing — to purge its computer network of foreign components, it had created the ‘3-5-2 rule’ – firms had to source 30% of their procurement locally in 2019; an additional 50% in 2020, and the remaining 20% in 2021. China also must have seen price instability while this policy took root. 

Maybe, in India too, the current spike in module prices is a temporary blip that will settle down once local manufacturing of polysilicon, ingots, wafers and cells starts.

And yet, questions persist. PLI winners lack the scale of a Longi.

Exporters face other challenges. Firms like Longi are planning to set up manufacturing units in the USA. Between that — or if the US cracks down on Indian panels for their Chinese components, as happened with the four South Asian countries — exports might fall. There is already talk that the government will expand ALMM to cells. But can those, in the absence of scale and ingot/wafer manufacturing capacity, be competitive against those made in China?

Given such challenges, will large firms focus over time only on the domestic market? Will they keep importing components? In that case, will domestic users get modules costlier than those available elsewhere in the world — with proportionately costlier solar power? 

Alternately, if the Indian government decides there is more to gain by allowing Chinese imports — and earning 40% from duties — instead of handing out PLI subsidies to a handful of manufacturers, the boom will end.

Hardwired into all this are two larger observations. The first has to do with global trade. How do large economies contend with China’s hegemony in sectors like solar? Do they, as books like Superpower Showdown: How The Battle Between Trump and Xi Threatens a New Cold War describe, get into trade wars with China? Or do they, like Pakistan, decarbonise cheaply, but develop dependency on China? Or do they bet on research, aiming to capture the next sunrise sector?

In the case of solar, remember, both India and the USA squandered their early leads in solar technology. China started making polysilicon only in 2009. India had made, in contrast, its first PV cell back in 1977. 

The second big observation? India’s efforts have, at least for now, created a walled garden where manufacturers are in clover. Given import duties, newcomers are rushing into the sector. Developers, discoms and power-users, however, get saddled with higher module costs. A cost-benefit analysis is sorely needed. 

In the US, too, as Bob Davis and Lingling Wei write in Superpower Showdown, researchers studying the impact of Trump’s tariff war with China concluded that “the costs of US tariffs to consumers outweighed the gains to companies protected from overseas competition.” Is India heading down the same path?

And yet, that is not the complete story. Developers, too, offload a part of their costs — especially generation and intermittency — onto discoms and their customers. This is a central trait of India’s electricity market right now. It supports manufacturers and developers at the cost of discoms and their users.

This series had started by wondering if, between the renewable bids and India’s solar panel manufacturing capacity, India’s set for a giant solar take-off. 

A key determinant there is this skewed allocation of risks and rewards. 

Let’s get into that next.

Read Part 1 , Part 3

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M Rajshekhar

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