Contribution to Economy: Renewable Energy (Solar) Sector in India
India is the world’s fourth largest producer of renewable energy, with 40% of its installed electricity capacity coming from non-fossil fuel sources. It is also the third largest consumer. The renewable energy industry in India is expected to grow significantly in the coming future. India has generated 47.64 BU of solar power in the first half of 2022, which is a 34% increase compared to the same period in the previous year. Solar power installed capacity has increased from 2.63 GW in March 2014 to 49.3 GW at the end of 2021, which is more than 18 times growth. India has added 12 GW of solar power capacity in 2022 (till November).
Currently there is no manufacturing capacity for the initial stages of the solar PV cell value chain (from polysilicon to wafer). For these raw materials, Indian solar cell manufacturers are dependent on imports mainly from China, which is one of the biggest drivers of solar PV development globally. Chinese suppliers accounted for around 90% of India’s total solar cell and module imports in the first half of FY21. The remainder comes from other countries including Malaysia, Hong Kong, and Singapore.
Imports were declining from FY19 to FY21. FY21 had the lowest imports, caused by factors including supply chain disruptions due to the Covid pandemic. One of the reasons contributing to the declining imports from FY19 may be the safeguard duty (SGD) imposed on imports of solar panels from countries including China and Malaysia from July 2018.
In FY22, total solar cell and module imports increased to more than US$ 4 billion in value, owing to factors such as resuming construction activities of solar power plants and other solar related projects, and the expiry of SGD in July 2021. Assembled solar modules accounted for 0.5% of India’s total imports in FY22.
India’s solar cell and module exports are significantly lesser than its imports. Around 76% of the exports are to the USA, while the rest is to countries including South Africa, Afghanistan, UAE, Turkey, Canada.
In FY20, when imports declined, exports nearly doubled. In FY21 and FY22, exports did not grow. Solar cell exports declined significantly in FY22, while imports increased. However, in FY23, imports have declined, and exports are rising significantly due to various factors, including import regulatory policies.
The government of India from April 2022 has imposed 25 per cent BCD on imported solar cells and 40 per cent on imported modules to support domestic manufacturing. The effects of this were seen on reduced imports in Q3 2022 (34% decrease compared to the previous quarter). Exports went up significantly: 499% in Q3 2022 compared to the previous quarter. The increase was 642% compared to the same period in the previous year. The total export value of solar cells and modules in Q3 2022 was US$157 million. The U.S accounted for 94% of the export market share in Q3 2022 and 54% in Q2 2022 and was the largest export market for solar cells and modules. One of the reasons for the rise in Q3 2022 was the U.S.’ restriction of solar imports from China due to concerns about forced labour.
The renewable energy industry currently employs around 1.1 lakh people in India according to CEEW. It has the potential to employ significantly more personnel in the coming years. New jobs faced decline during and after the Covid pandemic. The National Institute of Solar Energy (NISE), an autonomous institution of the Ministry of New and Renewable Energy also launched an initiative called Suryamitra skill development program, which aims to develop the skills of the youth for employment in the growing solar energy industry. It specifically aims to train youth for the growing solar energy power projects – for installation, operation & maintenance in India and abroad. It also aims to prepare the youth for entrepreneurship in this industry.
The programme has trained around 28,000 people from 2018 till date. According to an analysis by CEEW, NRDC and SCGJ, the renewable energy industry in India could employ around 1 million personnel (10 times the current number) in India by 2030. A significant portion of this would be in the solar energy sector. According to the Ministry of New and Renewable Energy’s annual report for 2021-22, the PLI scheme for the solar PV module manufacturing sector is expected to provide direct employment to around 26,000 personnel and indirect employment to around 1,05,000 personnel. This report considers the initial PLI scheme for the industry with an outlay of Rs. 4,500 crore. With the second tranche of Rs. 19,500 crore approved in 2022, the employment generation expectation figures may be higher.
The market supply and demand in the solar PV manufacturing sector in India is influenced by multiple factors. The demand for solar cells and modules is directly linked with the demand for electricity and solar energy, which depends on factors such as government policies such as subsidies, tax credits, and renewable energy targets, availability of financing, and the price of electricity. Factors that influence supply include the production capacity of manufacturers, the availability of raw materials such as silicon, glass, and aluminium, availability of financing, and the efficiency of the manufacturing process which includes production costs.
The global solar industry recently faced a supply-demand imbalance and supply chain disruptions which also affected manufacturers in India. Raw material prices increased which led to increases in prices of polysilicon, aluminium frames, solar glass, and more. Import duties on components from China are also a factor. However, module prices were expected to decrease and stabilize as polysilicon capacities are being added on a large scale in 2023-24.
Dependencies on imports to India for meeting demand are decreasing. With policies such as BCD on imports, and the PLI scheme, a robust domestic supply chain will start to get set up. Steps have already begun towards this. Adani Enterprises has started construction of a 30,000 MTPA polysilicon manufacturing unit in December 2022, as per the PLI scheme mandates. Other companies qualified under the PLI scheme are expected to build similar facilities.
The solar industry in India experienced significant growth in 2022. It has installed a record 12GW in new solar energy capacity in 2022 till November. As India’s energy requirement becomes the world’s highest in the coming decades, there will be great demand for renewable energy resources including solar energy. The Central Electrical Authority estimates India’s power demand to reach 817 GW by 2030, of which 44% is estimated to be fulfilled by renewable energy sources including solar energy. The installed solar energy capacity by 2030 is expected to be 280 GW.
Considering recent market developments and expected growth in the renewable energy industry in India, the domestic solar PV module manufacturing sector and market is expected to have an economic boom in the coming years. Geopolitical factors such as reduction in dependency for exports from China by countries such as the U.S. as well as reduced solar imports in India, gives the solar industry in India a great opportunity to meet this domestic as well as foreign demand.
Dhruv Chaudhari
Dhruv Chaudhari is a Research Intern at Tatvita. Presently he is pursuing his bachelors in the Liberal Arts department at the Savitribai Phule Pune University.
