Extended Wait Ahead For Any Price Drops In Solar, Wind

Extended Wait Ahead For Any Price Drops In Solar, Wind

If you track India’s renewable sector, you couldn’t have failed to notice the seeming exuberance in recent months. Amplified by the soaring valuations of listed firms on the country’s stock exchanges, at SaurEnergy, we have tracked how a basket of ‘green energy’ stocks we track has grown over 120% in value over a year. This is far higher than the overall index growth, or any projection of renewables growth, for that matter.

The jump in expectations has been driven by three underlying factors. One, the country’s seeming commitment to a 500 GW renewables target by 2030. This translates into the need to add close to 50 GW of renewable capacity every year from 2025 to 2030. In fact, current tendering pipelines indicate a 50 GW per annum addition is a real possibility for the coming two years. Two, measures taken to protect, and enable a local manufacturing ecosystem, particularly in solar. 

These measures have included high tariffs on solar module and solar cell imports, a mandate to use only domestically made modules (DCR) in most projects (ALMM Requirement), and PLI (Production linked incentive) schemes that seek to support faster manufacturing in solar and energy storage. Finally, you have the clear government intent to stay out of business itself, counting instead on the private sector and a clutch of PSUs to achieve these ambitious targets with mostly market led and private financing.

Though laudable in itself, it is becoming increasingly apparent that the moves to build self-sufficiency are likely to cost a lot more than just the one-off incentives or tariff protection measures. It could mean relatively elevated solar and wind costs in the country for the medium term. Let us look at both the solar and wind sectors separately.

Solar- Consolidation Inevitable

The ALMM, or the Approved List of Module Manufacturers has been the preferred tool used to keep out foreign module makers from the Indian market, especially since April 1 this year, when it was made mandatory, with the sole exception being for Green hydrogen projects, none of which has reached a groundbreaking stage yet.

The last ALMM list on July 8, listed total module manufacturing capacity of 50.8 GW in India. With a list of almost 90 manufacturers, one would be tempted to think all is well. A report by SBI Caps on India’s solar sector points to the significant difference in module prices in India and globally at almost 2X before duties. They indicate that this is mainly due to high demand, lack of downstream cell capacities, and higher depreciation as plants are newer. India’s capacity is largely based on PERC (convertible to TOPCON), with minimal HJT. 

A journey of Indian module manufacturing sector with the introduction of new policies since 2017. Source: SBI Caps Report.

However, out of this, the top 10 players alone account for well over 70% of total capacity, a number that might actually become more concentrated as capacities from Reliance New Energy’s Jamnagar Gigafactories come online next year. In all, by the time the full impact of India’s PLI manufacturing schemes plays out by 2025-26, the country is expected to nudge 110 GW of module manufacturing capacity, of which, the top 5 players might account for well over 50%. 

Executives at these firms stress that this very concentration or consolidation will lead to lower prices eventually, as economies of scale, better manufacturing practices and locally driven innovations gain ground.

As a senior executive pointed out, “Higher costs in India do not stop at the factory gates, even logistics cost, both for importing cells, or transporting finished modules to different parts of the country are much higher here”.  He adds that it is to the credit of the ecosystem in India that despite the higher costs, India remains the cheapest place for solar electricity prices even today after China when it comes to utility scale tenders.

List of India’s leading module manufacturers with their ALMM enlisted capacities. Source: MNRE

The stock markets clearly see some sort of a long, uninterrupted profit and growth path ahead, going by the high valuations for the few listed solar manufacturers in the past 24 months. The trend is more apparent in the valuations accorded to Solar EPCs as well, while large developers like Adani Green and Tata Power and now, JSW energy have also started enjoying a ‘renewables premium’. 

While some of the largest manufacturing players remain unlisted, going by the growth in FY23 versus FY22, players like Waaree Energies ( 132% revenue growth, over 500% profit growth), Gautam Solar ( 46% revenue growth, over 300% profit growth) and many others have shown a remarkable turnaround. While their FY24 numbers are not available yet, listed players like Insolation Energy (over 165% revenue growth in FY24 over Fy23, profit growth over 400%) that invested into major expansions have shown a huge boost in FY24.  

The question is, are these profit spikes indicative of profiteering? Industry experts certainly expect profit growth to moderate soon, driven by market pressures primarily due to the sensitivity to rising solar energy prices seen earlier among the key buyers, especially discoms. Even the C&I segment, usually more elastic, is becoming more demanding as awareness develops.  

Solar Cell Costs Escalate

What doesn’t help is the situation on solar cell manufacturing, a more complicated endeavour manufacturing wise. Here, from a handful of players currently that cannot even meet internal demands, the situation will remain concentrated, with total cell manufacturing capacity unlikely to cross even 20 GW in the near future or say, 2025 end. A pure play cell manufacturer like Jupiter International can barely meet demand, and with the DCR mandate, can afford to sell cells at a huge premium to Chinese rates. That translates to a significant cost advantage to players like Tata , Adani, ReNew, Reliance, Premier Energies and of course Waaree, the existing solar cell makers or those with concrete plans to establish cell making capacities. 

Ravinder Tanwar

With DCR norms and strict implementation of traceability standards coming into force, quality domestic cell makers find themselves in a seller’s market. However, they are quick to refute allegations of profiteering. “Comparing India prices to China is simply not a good idea”, asserts Ravinder Tanwar, Chief Operating Officer, Websol Energy System Limited. Websol has been one of India’s pioneering solar cell makers, and it has a significant capacity expansion plan . 

Tanwar points to three factors- 

• Availability of quality manpower for the vastly more complicated cell-making process, the difference in scale between India and China, (6 GW solar cell manufacturing capacity versus 545 GW capacity in China in 2023 ),
• Indian manufacturers are shifting to advanced technology based on PERC /Topcon technology, scaling and developing local sources for raw materials and consumables will take  some time to be competitive in compare to China made cells
• Highlighting the sharp hike in engineering talent required for cell manufacturing in  maintenance, processes, and quality control has gone up special skill required in these areas , ,retaining and attracting right talent becomes costlier , in some cases it has gone  two to three times .

Tanwar stresses that present government policy and present local infrastructure has made products qualify for all international standards and in the near future “we will be internationally competitive”, he promises.  

Hitesh Doshi

Dr. Hitesh Doshi, Founder and CMD at Waaree Energies, the largest module player in India, while speaking to SaurEnergy had made a somewhat similar point. He stressed that Waaree itself would be adding 5.5 GW of cell manufacturing capacity within the year, with 6 GW more lined up under the PLI scheme they had won. Dr. Doshi also pointed out to the losses all the Chinese majors had registered in the past quarter, as a clear sign of a market battle that was still playing out there. The firm, which is in the quiet period before its long awaited IPO, has also stressed that profiteering is inconsistent with how the module business in India is going so far, even as firms seek to make sustainable profits that will allow them to reinvest into the business, unlike the pre 2020 period.   

On the even more complicated solar wafers and polysilicon, the situation will remain dire, with plans moving slowly to make those in the country, with final capacities likely to cross barely 10 GW by 2026.  

Much like the US where the Inflation Reduction Act has seen a rush to make modules, including Indian firms like Waaree as well,  in India as well, the modules market has seen players rush to ramp up while the funding environment is positive, as seen in the raft of IPOs already launched or announced. Industry players have repeatedly said that much like China, ‘tier 2 and 3 players’ with capacities below 1 GW might find it tough to survive eventually.

SBI Caps report on linkage of module prices and average Indian solar project tariffs.

Government Backed Schemes Remain A Key Demand Centre

For now, smaller players have high hopes on the PM Surya Ghar Scheme (potentially could add 30 GW) , or even the PM-KUSUM solar pumps scheme (targeted 32 GW additions), where they still have an opportunity due to DCR requirements plus an end consumer low on awareness on the differences between modules. But as penetration improves, you can bet that smaller manufacturers will face tough questions. They will be hoping they would have recovered the investments made in their manufacturing plants by then, with a typical need to run a module plant at 80% capacity for three years to recover costs. Assuming the impact of ever changing technology now.  

One developer we spoke to pointed out that large supply deals have been tied in with these majors by large developers, with deliveries starting only in 2025 to hedge against the risks of shortages of high quality TOPCOn or Bifacial modules.

Developers also complain that the cost difference is being borne by end consumers as module prices in India versus those in China are reaching differences as high as 80-90%. Manufacturers however point out that the low Chinese prices have also been flagged as unviable by the leading Chinese manufacturers themselves, making the comparison unfair with India. Eventually, the difference to expect is in the range of ’35-45% at most’, says one leading manufacturer. The price to pay for self-sufficiency, it seems.

Abhinav Mahajan

Abhinav Mahajan, Director of IB Solar, a solar module manufacturing company told Saur Energy currently the prices of DCR solar cells are comparatively higher owing to the dearth of local solar cell makers in India. He however said that these higher prices, fueled by the monopoly of the handful of solar cell companies in India, could be brought in the months or years to come when more local companies venture into solar cell manufacturing to bridge the gap. Thus, the overwhelming consensus for now in solar is to live with the price gap for some time, before Indian firms achieve better economies of scale, and the learnings to manage more efficient manufacturing. 

Wind turbine makers too are benefiting despite higher prices, thanks to a rising trend for Hybrid projects, and stronger demand from the C&I segment where a wind component can reduce storage requirements for projects. The C&I segment itself is expected to add 4.5 to 5 GW of renewable demand annually between 2025-2030 in a best case scenario, with a significant portion for wind. 

Wind Energy- Make In India, at What Cost? 

The wind energy manufacturing ecosystem, till recently showcased as a success story, if clearly fraying. The market is increasingly becoming a three-horse race, with Suzlon Energy and Inox Wind carrying the Indian flag, while China’s Envision Energy remains the last major foreign player willing to stay for the long haul, for now. Erstwhile European and American players like Siemens Gamesa, GE Vernova, besides Vestas have either packed up or are seeking an exit. In any case, one hasn’t tracked a single deal of consequence for these players in 2024. Siemens Gamesa for instance had revenues of almost $700 million from its India unit with a large established base in the country.

Add to that the push to acquire O&M services firms by the remaining players, including the buyout of Renom by Suzlon earlier this month, points to an unhealthy lack of alternatives for clients/power developers. Existing O&M costs for many projects risk rising as the O&M market is dominated by two to three players. Earlier last year, Inox Green, a subsidiary of Inox Wind, had acquired another multi brand O&M player, I-Fox Windtechnik India.  

Developers we spoke to did not want to be named but stressed that there is zero doubt that prices will rise at this rate. Perhaps by as much as 15-20% in the medium term by 2025, leading to higher prices for consumers eventually.  With an existing order pipeline of over 7 GW in place for these players, the impact of consolidation in suppliers and O&M services will only be felt from 2026, reckon these developers. Although, the impact on bids for wind energy tenders will be visible much earlier.