India's target to install 500 GW of renewable energy by 2030 could result in an annual solar equipment import bill soaring to approximately USD 30 billion, while increasing the country’s reliance on Chinese goods, a report from the Global Trade Research Initiative (GTRI) warned on Sunday.
The report highlighted the need for significant investment in developing a self-reliant solar manufacturing industry, particularly in polysilicon and wafer production, to create an integrated supply chain. Without this investment, India risks continued high import costs and may struggle to meet its renewable energy objectives.
As of September 2024, India has installed 90.8 GW of solar capacity, with 15 GW added in the 2023-24 fiscal year, up from just 2.8 GW in 2014. To meet the ambitious 500 GW target, the country needs to increase solar installations significantly to between 65-70 GW each year, with over 80% of the target expected to come from solar energy, GTRI stated.
“This target seems ambitious, particularly given India’s reliance on imports, which could push solar imports to USD 30 billion annually,” the report noted.
In the 2023-24 fiscal year, India imported USD 7 billion worth of solar equipment, with China supplying 62.6% of these imports.
China dominates the global solar market, controlling 97% of polysilicon production and 80% of solar module manufacturing, making it challenging for India to compete due to the lower prices offered by Chinese suppliers.
GTRI Founder Ajay Srivastava pointed out that while initiatives like the production-linked incentive (PLI) scheme aim to bolster local manufacturing, their impact is limited as they still rely heavily on imported materials.
The report indicated that India's solar manufacturing sector is still in its infancy, with most projects depending on imported ready-to-use modules.
During the last fiscal year, imports of ready-to-use solar modules reached USD 4.4 billion, along with USD 1.9 billion in solar cells and USD 1 billion for essential components like inverters, cables, junction boxes, transformers, and other electrical parts required for solar installations.
“Local production is import-dependent and mainly focuses on the final two stages of production. Ninety per cent of solar manufacturing in India involves assembling solar modules from imported cells, contributing just 15% local value addition,” the report stated.
It revealed that very few Indian companies manufacture commercial-scale solar cells from imported polysilicon or wafers, with no producers using silica sands to create solar cells from scratch.
To reduce import dependency, Srivastava asserted that India must develop the capability to produce solar cells starting from silica refining, a process that is both costly and energy-intensive and requires advanced technology. He stressed that local production should also extend to aluminium frames, glass, and other materials, necessitating robust research and development efforts alongside government support.
The report indicated that China remains India's largest supplier, providing USD 3.89 billion worth of solar cells and modules, accounting for 62.6% of total imports, followed by Vietnam, Malaysia, and Thailand.
To curb reliance on Chinese imports, India has implemented a 40% customs duty on solar modules and a 25% duty on solar cells. However, imports from Vietnam, Malaysia, and Thailand are exempt from these tariffs under the India-ASEAN Free Trade Agreement, provided they add at least 35% value to the imported components.
The think tank proposed seven strategies to enhance domestic manufacturing and reduce imports, including increasing investments in upstream solar production and expanding the scope of the PLI scheme to encompass early-stage solar manufacturing.
Srivastava also advocated for partnerships with the US, EU, and Japan to establish large-scale solar manufacturing facilities, thereby fostering an independent and resilient solar industry in India.
He called for a reassessment of current import duties on solar modules and cells to promote local manufacturing without raising costs for consumers.
As the global shift from fossil fuels to renewable energy accelerates, solar power is expected to comprise 50-80% of the renewable energy mix in many countries.
In 2023, China exported 227 GW of solar modules worth USD 39.5 billion and 38 GW of solar cells valued at USD 4.2 billion, maintaining its dominance in the sector.
The report concluded that producing solar panels involves six stages, from mining silica sand to assembling the final product, and most countries prefer to import fully assembled solar modules rather than develop domestic production capacity.
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