India’s solar power developers are saddled with unsold capacity. Now they face another risk

Solar module prices have surged by roughly a third since late December, thanks to soaring prices of silver and aluminium, a weaker rupee, and a global scramble for components after China tightened wafer quotas and signalled a rollback of a 9% value-added tax refund. The price of photovoltaic cells—the core of the solar panel—has jumped to 5.5 cents per watt peak from 3.5 cents in just weeks, four people aware of the matter said. A module comprises multiple cells, which are largely imported.

“The recent jump in cell prices highlights the structural vulnerability of India’s solar supply chain," said Prashant Mathur, chief executive officer at Saatvik Green Energy Ltd, a Gurugram-based solar component manufacturer. “As equipment costs rise, upcoming projects will face higher capital costs, and tariffs for new power purchase agreements (PPAs) are likely to harden after a prolonged period of deflation."

A total of around 93 gigawatts (GW) of solar power capacity is under construction, and the segment accounts for an installed capacity of 135.81GW. India targets 300GW of solar energy in its overall 500GW non-fossil fuel capacity by 2030.

The risk of higher solar tariffs is another concern for India’s renewable energy sector, as multiple states prefer long-term purchase pacts for stable coal-fired power. Moreover, 43 gigawatts (GW) of green power, involving an investment of ₹2.1 trillion, doesn't have long-term purchase and supply agreements, Mint reported earlier. Besides, amid an oversupply of renewable power during solar hours, power distribution companies are selling renewable energy on electricity exchanges at a price lower than what they had purchased it for.

Module makers at risk too

"Since the later part of December, there has been a massive jump in cell prices, owing to the rise in silver and aluminium prices, along with a sudden supply crunch as China has imposed capacity quota restrictions on wafers," said an executive at one of India’s largest component manufacturers, speaking on the condition of anonymity.

"The policy move of VAT refund rollback has set off a scramble among global buyers to secure supplies ahead of the deadline. This rush has created a sharp demand spike, driving global solar module prices further," the executive said. “Domestic module manufacturers, who still rely heavily on imported cells and silver, have raised module prices by as much as ₹20 lakh per MW (megawatt) from ₹2-3 crore per MW."

According to the executive, this development would not only increase project costs in India but also impact the internal rate of return (IRR) of solar module makers in India, as most of the components for the modules assembled in India are imported from China."

India has more than 100GW of solar module manufacturing capacity, with Adani Solar, ACME Solar, Avaada Electro, ReNew, Waaree Energies and Saatvik Solar among the major players. According to UK-based consulting firm Wood Mackenzie, this capacity is on track to surpass 125GW by 2025.

However, the country has only 18GW of cell production, and subcomponents, including polysilicon, ingots, and wafers, are all imported. And Longi, Jinko Solar and Trina Solar are among the top Chinese solar module suppliers.

Queries emailed to the spokespersons of Union ministry of new and renewable energy, the Chinese embassy in India, Adani Solar, ACME, Waaree Energies and Avaada remained unanswered until press time. Key Chinese suppliers Longi, Jinko Solar and Trina Solar also did not respond to queries.

Mint awaits responses from queries emailed to India’s renewable energy implementation agencies–Solar Energy Corporation of India, NTPC, NHPC and SJVN–and renewable power developers NTPC Green, Adani Green Energy Ltd and ReNew.

Policy conundrum

Indian solar power developers must source components from an Approved List of Models and Manufacturers (ALMM) under government-supported schemes and projects. A similar mandate will come into effect from June this year for cells, while wafers may be brought under such a scheme by 2028 to boost local manufacturing.

There should be terms and conditions that account for factors driving price volatility, so the power-purchase agreements can be revised, according to a former secretary in the ministry of new and renewable energy, who didn’t want to be identified. "Policy uncertainty has been a major concern for the renewable energy space, including the implementation of the ALMM and its exemption allowed for a certain period due to a lack of local capacity."

Higher module prices will also hurt the projects that have secured power purchase agreements but have not been implemented. Solar sector rules do not allow power producers to recover these costs.

“There is no such provision in the power purchase agreements to revise tariffs or allow compensation if prices of components increase due to external factors such as actions by a supplying country," said Mohit Bhargava, country director, India Energy & Climate Center, Goldman School of Public Policy (GSPP), UC Berkeley.

Bhargava, a former CEO of the NTPC Green Energy Ltd, said: “The impact on the IPPs (independent power producers) would depend on the rate of price change of the cells and other components. There would be a marginal hike in project cost and impact on profits, and if the hike in prices is significant, the impact would also be higher."

According to Mathur of Saatvik Energy, this “reinforces the reality that India cannot indefinitely rely" on imported cells and modules while targeting aggressive renewable capacity additions. “From an industry standpoint, stronger prices improve the sustainability and IRRs of domestic manufacturers, but they also put pressure on IPPs with fixed tariffs. This is precisely where policy plays a stabilizing role," he said.

Ashish Agarwal, head of solar and storage at BluPine Energy, expects the cell prices to drop.

“Recent movements in module prices reflect evolving upstream dynamics, driven by higher cell costs and a seasonal dip in production in China ahead of the Chinese New Year. This is a familiar, short-term pattern in global supply chains, and prices are expected to return to previous levels as production normalises," said Agarwal of Actis-backed BluPine, which has a total renewable capacity of nearly 4GW.

“However, if elevated prices persist, this would directly impact project costs and returns for developers, while module suppliers remain largely insulated as costs are passed through," he said. “Prolonged price pressure could slow project execution and lead to softer demand across the renewable sector."