Price surge or power surge? India’s solar conundrum

In the first instalment of a three-part series on India’s solar sector, CarbonCopy uncovers a stark contrast: while manufacturers and developers flourish, discoms, EPC firms, and consumers grapple with significant challenges.

Where is India’s solar sector headed? One possible view of the future came in September last year. That month, REMCL (Railway Energy Management Company), a joint venture between Indian Railways and RITES, floated a tender seeking 750 MW of round the clock renewable power.

The bids triggered excitement across India’s renewable sector. The lowest bidder, Gujarat-based Torrent Power, had sought just ₹4.25/unit. The other four winning bidders — ReNew Solar; TEQ Green Power; NTPC Renewable Energy; and Tata Power Renewable — had bid between ₹4.37 and ₹4.43 per unit.

Three months earlier, another REMCL tender had netted an even lower price. Chasing a 300 MW renewable round the clock tender, Bangalore-based Ayana Renewable had bid ₹4.1/kWh. To put these numbers in perspective, the cost of thermal power/kWh stood at ₹4.13/kWh in 2022.

Intermittency has been the bugbear of the renewable sector. It has fomented grid instability, compelled discoms to simultaneously pay for standby power from thermal power projects and been a major argument against renewable energy adoption.

With these bids, the sector saw chatter on whether ‘round the clock’ renewable power had finally turned cheaper than thermal power — and if exponential growth would now follow.

India is scaling solar

Other developments also suggest the sector is about to see rapid expansion. 

Three years ago, it was in trouble. Between weak market design and muddled policy variably pushing indigenisation and faster solar deployment, solar capacity addition was slowing. 

Much has changed since. Prices of Chinese solar modules have kept falling, now reaching previously unimaginable levels. “Just 13 years ago, in 2011, panels were selling for about $1.48 a watt and the stretch goal was to reach 50 US cents a watt,” says industry tracker Wood Mackenzie. “Now prices in China are closing in on just a fifth of that level.”

In response, though, India has erected trade barriers, replacing erstwhile import duties with more stringent policies — like the Approved List of Module Makers (ALMM) revived this April, and Domestic Content Requirements — to ensure local procurement. A PLI scheme has been rolled out as well — to manufacture not only modules, but also cells, ingots, wafers and polysilicon locally — in the hope of decoupling India’s solar sector from that of China.

With that, the country’s module manufacturing sector is seeing a boom. As CarbonCopy had reported in 2021, India’s energy sector is rebundling. The trend started with thermal power integrating backward into coal-mines and integrating forward into discoms. In the past three years, more players have grown laterally into renewables — and renewables manufacturing.

At one end are conglomerates like Adani, which have not only diversified from coal and gas into solar and hydel — apart from investing in transmission lines and discoms —  but also backwards integrated into renewables manufacturing. A clutch of renewable developers — like ReNew — have backwards integrated into solar manufacturing as well. Existing manufacturers — like Premier Energies and Waaree Solar — are scaling up. Waaree has announced plans to set up a manufacturing plant in the US. Premier Energies has raised money through an IPO. Waaree’s IPO will follow.

“If we get our act on land acquisition and transmission together, India can more than double its installed capacity of solar power — up from the current 81 GW — by 2030,”

– a senior advisor to the Indian government, who spoke to CarbonCopy on the condition of anonymity.

A clutch of neophytes have entered module manufacturing as well. India now has over a hundred module manufacturers — up from four or five in 2016. “As many as 34 are setting up manufacturing capacity over 1 GW,” Subrahmanyam Pulipaka of the National Solar Energy Federation of India (NSEFI) told CarbonCopy. “Seventy-four plus firms are adding manufacturing capacities up to a GW.” Along the way, says All India Solar Manufacturers Association, India’s solar manufacturing capacity has spiked from 10 GW in 2021 to 60 GW now. More capacity is in the works, boosting panel production to 110 GW by 2025-26. 

As those modules get deployed, India’s installed solar generation capacity will rise. “If we get our act on land acquisition and transmission together, India can more than double its installed capacity of solar power — up from the current 81 GW — by 2030,” said a senior advisor to the Indian government, who spoke to CarbonCopy on the condition of anonymity.

An uneven burden

And yet, look beneath these narratives, and you will find two limits — one new, the other old — to solar’s growth in India. 

Domestic demand continues to stay low. India added just 14.9 GW of fresh solar generation capacity in the first half of 2024. If this trend lasts through the year, the country will add 30 GW of fresh solar capacity — half of its current manufacturing capacity.

Incredibly, despite market demand lagging production, domestic prices of locally-manufactured modules have spiked 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,” Indian Express reported in August. “This gap has widened since FY22, when domestic prices were 6% higher than imports.”

Given ALMM, most manufacturers import cells from China and assemble them into modules in India. “The present price of cells in China is around 6 cents… after imposition of 25% of duty, which we have put in place, it comes to 7.5 cents,” wrote former Union minister of power RK Singh in file notings accessed by the newspaper. “The fabrication cost is not more than 7-8 cents. Therefore, the modules should be available for 16 cents; however, the module manufacturers are charging 23-24 cents.” He described this as “excessive profiteering”.

The implications are clear “Developers’ project costs must be going up,” a former solar developer told CarbonCopy. “They will have to either take those losses onto their books or pass them onto discoms and end-customers.”

Manufacturers are not the only entity loading costs onto others. Solar developers, too, push a part of their costs onto India’s wider energy architecture. They don’t, for instance, pay transmission charges. Such costs, not to mention the bigger cost of arranging backup power given renewables’ intermittency, fall on discoms and are thereafter transferred to customers and taxpayers.

As this series will show, it made sense to subsidise solar when it was small and needed nurturing. These incentives, however, have remained untouched even after the sector grew much bigger. On the whole, India’s electricity landscape has an uneven distribution of risks and rewards where solar manufacturers and developers make supernormal profits while the country’s discoms, power users, and tax-payers lose.

As solar grows, so will these costs. Will India’s solar sector, then, grow to the extent that discoms and customers can shoulder these loads?

Larger questions

On the whole, India’s solar sector needs a relook. 

Between government schemes to boost manufacturing, solar developers diversifying into manufacturing and alternative forms of renewable power, and India’s turn towards protectionism, the sector has seen a lot of change.

Is the senior advisor to the Indian government correct? Is solar now set for quicksilver growth? Is the spike in module prices a temporary blip — or is protectionism creating a long-term trend of high-priced modules? Can discoms absorb 160GW of renewables? Where, essentially, is India’s solar sector headed?

The next two parts of this series will get deeper into these questions.

(Tomorrow: Why Godmen, bidi manufacturers and ceramic tile makers are entering solar module manufacturing)

About The Author

M Rajshekhar

See author's posts