Ready, Set, Go: India’s Solar Manufacturing Ambitions Are Flying

For India’s solar sector and its many entrepreneurs, all signals are finally green. Or so it would seem. Be it progress on manufacturing plans, including the all important backward integration, exports, and of course, a strong domestic market for their output. Everything has come together for the many firms and entrepreneurs who will hope for a really strong run in the domestic and international markets for the coming decade and beyond. If solar, hybrid (solar+wind) and C&I are the keys for the next few years, any slack, if at all, will be picked up by capacity needs for Green Hydrogen and large renewable plus energy storage requirements as costs drop there too.

That is why even as the country chases a total nameplate module making capacity of almost 100 GW by 2026, the interesting addition is the 30 GW worth of polysilicon-making capacity, and an even higher share of ingot/wafer and cell-producing facilities by the same time. Those numbers easily place the country behind China in terms of projected capacities by 2026.

But industry watchers point to just one figure to point out how it’s not all easy—the installation numbers for the first six months of calendar year 2023. Based on the official figures, at 6,974 MW or just under 7 GW, solar capacity additions have already trailed 2022 numbers by 19%, thanks mainly to a struggling utility-scale segment. Capacity additions in all of 2022 at 13 GW had grown over 27% compared to 2021, kindling hopes that it would only be up, up and away from 2022 on. So the stumble this early in 2023 is a clear warning that obstacles remain, as always. Keep in mind that manufacturers, even today, that we spoke to insist that 30 GW plus per year from here on is a clear possibility and expectation, one might add.

Bharat Bhut, Director and Co-Founder at Goldi Solar, is happy to share his own estimate on the table. “According to my analysis, there will be a demand for 50 GW or more per annum and numerous uncalculated and unpredicted demands in the current market landscape. We must only estimate the nature of these demands by calculating utility PPA, awarded contracts, and new tenders. However, when we consider all these factors and calculate the deployment rate year-on-year, we can observe a significant surge in demand over the next three years,” he said.

He also added, “I cannot foresee any decrease in demand in India, considering the widespread adoption of solar power across various sectors, such as the C&I segment and residential and farming pump sectors. The industry’s growth, the rising electricity demand, and expanding the manufacturing sector will lead to a higher demand for electricity. Moreover, more manufacturing companies will adopt renewable energy to lower production costs, boosting the demand for solar power.”

Goldi Solar has backed its conviction with money, going from a 500 MW nameplate capacity to 2.5 GW currently, with a further expansion to 6 GW module production and a fresh 5 GW of cell production capacity planned by 2025.

With the Power and MNRE Minister R.K. Singh asserting in Parliament recently that there is a pipeline of over 55 GW of renewable projects in place, you would imagine that those numbers will play catch up soon. Unfortunately, it hasn’t really happened.

S Vasanthi, CTO at Kolkata-based Websol Energy, one of India’s earliest entrants into the solar manufacturing space and an industry veteran, captures all the challenges manufacturers today are overcoming to make India a solar superpower in the true sense.

“Definitely, more should have been done earlier. We are at least five years behind, if not 10 years. Every industry takes some years to mature. Our taxi time is over and we are ready to take off. In the next two years, massive capacity additions for cell and module manufacturing will be made. What is still missing is the availability of critical raw materials for the manufacturing of cells and modules. We still have to import all the wafers, metallization paste and specialty gases for cell manufacturing as well as many of the raw materials for module manufacturing,” she said.

She added, “What is also missing is the road and rail infrastructure for transporting raw materials and finished goods within the country. Another big vacuum is the absence of equipment suppliers for both cell and module manufacturing. We are fully dependent on imports from Germany and China for the same.”

Vasanthi said that the same is the story regarding R&D activities in cell and module manufacturing, where spending is very minimal. “A lot more research institute and industry participation is required,” she said. (See S Vasanthi’s full interview after this story).

The Capacity Issue- Not An Issue Officially

So, is there a risk that India might be heading to a manufacturing glut? By all accounts, not a single industry spokesperson we spoke to agrees. In fact, in this case, this absolute unanimity itself would be a worry, as firms that have finally made GW-sized bets on expansion and the future don’t even view it or consider the possibility.

Bhut quickly dismisses any fears of overcapacity in the short or long term. “There is a slow demand in the market due to the monsoon, and this period experiences a slowdown. India has no overcapacity; in fact, there is still a need for more capacity compared to the existing demand. Additionally, the utilities have been awarded as Power Purchase Agreements (PPA). So, if you consider the quantum of PPAs that have been awarded and the number of tenders that have been announced, along with the state-wise calculation of market demand, there will still be a shortage.”

Bhut acknowledges the temporary slowdown right now, calling it ‘seasonal’. “Despite the current situation in India, there are certain low and high seasons. Some may believe there is overcapacity during low seasons, but there is no excess load capacity; instead, there are demand and supply gaps. Throughout the year, there are periods of higher demand and certain periods with lower demand”, he adds.

He is backed by Kunal Saxena, GM Strategic Initiatives at Ampin Energy Transition, a key developer in the C&I segment especially. Saxena adds that besides the regular demand, the demand for green energy to power the Electric Vehicles (EV) segment, besides Green Hydrogen, will also step in earlier than many people assume, considering the push provided to these officially.

However, even as India looks certain to be the no. 2 manufacturer of solar equipment worldwide by 2026, with strong domestic backward linkages to boot, the news from the US and EU is equally bullish. Solar companies in the US and beyond have announced plans for 47 GW of new US module manufacturing capacity on the back of the US Inflation Act and other government policies, according to the Solar Energy Industry Association (SEIA), an industry forum. The estimate, made in March this year, could probably be revised upwards based on the subsequent announcements made, including by India’s Vikram Solar for a plant in Colorado (US), and others. By 2026, US manufacturing capacity for polysilicon, wafers, cells, and modules could reach 30 GW, 26.3 GW, 13.13 GW and 51.7 GW, respectively.

Similarly, at SaurEnergy, we have tracked European announcements adding up to plans for well over 24 GW of manufacturing capacity on the continent at last count, with construction for at least 9 GW underway already. Both are lucrative markets for Indian manufacturers, as we have seen in the year gone by. A report by ICRA has hinted that the country’s solar cell and module exports by domestic OEMs were Rs 8,840 crore in FY 2022-23 as opposed to Rs 1,819 cr in FY22. This is a 364 percent surge in India’s solar exports. Many of these exports were headed for the US and Europe, and while the outlook till 2025 remains strong for exports, it is anybody’s guess how things will square up once domestic capacities come up there.

The Technology Question

“Larger, Thinner, Trackable, and more powerful”. This one-line description of what to expect from the future when it comes to solar panels encapsulates all that is happening in the technology space for solar right now.

One of the biggest issues that held back Indian solar manufacturing growth until recently was the multitudes of small firms assembling polycrystalline modules. With the PLI scheme, the Indian government finally bit the bullet and made it mandatory to achieve a certain efficiency standard in new module-making capacities coming up. Before that, major market movers like SECI had also been pushing the bar on module efficiency they sought for projects after extensive to and fro discussions with developers and manufacturers alike.

With multiple technology changes still on their way, the key trends the industry is witnessing are the strong emergence of HJT (Heterojunction Technology), where the obstacle of high price is expected to come down with a larger manufacturing push at scale from the likes of Reliance for instance, besides players in Europe, China and even the US. However, the big change underway that is expected to dominate is TOPCon, considered the natural successor to PERC technology. While PERC (passivated emitter rear contact) technology has been the dominant option in solar panel manufacturing, TOPCon, or tunnel oxide passivated contact, first made its entry in 2013 through a German research lab behind many solar innovations, Fraunhofer Institute for Solar Energy Systems. TOPCon pairs a tunneling oxide layer with a PERC solar cell to reduce recombination losses and increase cell efficiency.

It has been adopted by many Chinese manufacturers since 2019, with most seeing it as a solution to not just moving to the next level of efficiency in module performance but also a critical differentiator when competing against firms stuck with PERC technology. In a sector where every fractional jump in efficiency matters, TOPCon modules are already promising up to 26% efficiency and more, even as PERC modules seem to have topped out at 24% in the best cases.

Vasanthi believes another landmark jump in solar technology would happen if perovskite were integrated with crystalline silicon technology as a tandem structure. According to her, efficiencies of 29% + are expected in that case.

Linked to technology is a push by Chinese majors for standardized cell sizes (210 mm) that could further lock in some major clients with them, although here again, a shift to 230 mm at some stage is a real possibility.

Saxena is sanguine about the move, though, seeing it as a natural progression that manufacturers can prepare for. “With cost reduction in TOPCon and HJT, one of them should be the mainstream product by 2025. India should observe a co-existence of mono-PERC technology and new technologies for the next three years.”

Bharat Bhut also sees TOPCon dominating by 2025, but as a manufacturer, it believes Indian firms will not be caught on the wrong foot. “All companies are actively adopting the latest technological advancements, and Indian firms also foresee technological upgrades and advancements in the next two to three years. Companies are making well-informed decisions regarding purchasing technology, ensuring that the equipment purchased by Indian companies is upgradable and can be relevant for at least three years. Therefore, the technology adopted by Indian companies is now comparable to that of Chinese companies”, he adds.

Truth be told, in the past, recent technology innovations have been focused upstream of the solar supply chain to reduce production costs. The new focus on improving conversion efficiency and power output will effectively reduce the solar power generation cost to be further reduced by a further 25%, based on various inputs.

Experts also point out that major disruptions beyond those mentioned above look difficult because margins today do not allow firms to invest in truly breakthrough innovation. The relative dominance of China, which will sustain, plus within that, the dominance of the top 5 or six Chinese-based firms, also ensures that huge disruptions are out of the equation. Chastened by the volatility in prices since 2019-20, many large global developers today have locked in supplies for the next 2-3 years, further reducing the funnel for significant changes.

Finally, there is the push, led by Chinese majors like Jinko Solar and Longi, from P-type to N-type wafers. While P-type wafers account for over 80% of the global wafer capacity, for now, N-type wafers are picking up fast, especially among the Chinese majors. While the Boron spiked wafers are termed P-type, the N-type wafers have phosphorus instead. Thus, even as the P-type wafer has a well-established and simpler production process that is in use widely, N-type wafers provide a larger potential for solar cells with high conversion efficiency.

With manufacturers who have invested in P-type looking at a minimum 3-4 year payback time on the investment, as N-type requires significant investments, change here will be sure but slower. In fact, HJT uses N-type wafers, which is one reason it offers higher efficiency but at a higher production cost, too, so far. If one looks at the various scale-up plans announced using this technology, the impact is only likely to be felt post-2025 for now. For firms like Reliance, which has invested in focused research players like Nexwafe for more efficient manufacturing, an early go-to-market product would be welcome of course.

Industry watchers like Saxena are optimistic, though. “Indian solar manufacturing lacks scale. Also, in terms of new technologies, we are “followers”. But with the demand situation improving and the focus on manufacturing by the Indian government (both Centre and State), India should catch up in both scale and technology with China”, he adds.

And then, there is the issue of power electronics that go with the modules in the form of solar inverters. This market, which Chinese firms also dominate, saw a frisson of excitement with news of an Indian major looking to buy out a European inverter major recently. However, the deal fizzled out for reasons best known to them, leaving the market heavily dependent on Chinese firms even now.

Coming Soon: From Few To Many Sellers

A factor that has just started getting noticed is the rush to manufacture in two hitherto consuming markets that were happy to import–the EU and US. In both these markets, a heavy dose of incentives and sops has achieved what the market could never hope to. It brought a degree of manufacturing interest back, with firms rushing in to take advantage. Korean, Japanese, Chinese and even the odd Indian firms have signalled plans to establish solar manufacturing in the US. And this is even before we talk about the largest domestic US player, First Solar, the only major using thin-film solar technology at scale, which has also announced significant expansion plans. While it is the munificence of the Inflation Reduction Act in the KUNAL SAXENA GM- Strategic Initiatives Ampin Energy Transition US and the support it provides, in Europe, it is the Green Deal and the many grants it offers for innovation and local manufacturing that are moving manufacturing back.

What this means is that in case a significant part of these plans and announcements come to fruition, there will be pressure on the local governments to protect the new, incipient manufacturers from the threat of foreign competition or dumping, depending on what they choose to call it. While China is the obvious threat for all, as seen by India’s tortured efforts to find a balance between imports and protecting domestic manufacturers, the US and EU, in particular, are very capable of creating more non-tariff and tariff barriers for exporters from India too. These barriers could take the form of duties based on emissions across the supply chain, retaliation against other measures taken by the Indian government in spheres like agriculture, or simply finding newer ways to subsidize their own industries.

That will mean markets like Australia, the Middle East, Latin America, and Africa especially will see fierce competition, with every small advantage worth leveraging for players. Be it proximity to save on freight, or free trade agreements (of the kind that India is wincing from with ASEAN countries), or even exports tied to aid or concessional credit.

Conclusion

A strong domestic market is generally seen as a prerequisite for a strong manufacturing sector, which is why solar finally attracted large conglomerates like Reliance, Adani, Jindals and the Tatas to its fold. However, there is no arguing that the ambition is to be a serious exporter too, where the China+1 approach of key buyers in the US, Europe, and elsewhere was seen as a strong advantage.

Bhut points out that “having polysilicon and wafer manufacturing capabilities within India will undoubtedly provide India with better cost control over prices. Many markets specifically require Indian-origin or made-in-India polysilicon and wafers, which can significantly benefit domestic manufacturers. By controlling the cost of polysilicon and wafers, we can be fully confident that we can produce a much lower-cost model”.

However, counting too much on the China+1 model may not be a good idea, as we have seen repeatedly that sheer economics can trump any such move very quickly. Thus, the pressure to match Chinese manufacturers on production efficiency and quality will be key to go with the obvious marketing advantage Indian firms should have in global markets. Strong global EPC players out of India would help, too, as they help nurture an ecosystem of trained manpower besides other advantages.