Can India match China’s lead in solar manufacturing?
China accounts for more than 80 per cent of production in all manufacturing stages (such as polysilicon, ingots, wafers, cells and modules) of solar panels.
The last decade saw China emerge as the largest solar power manufacturer. How did they achieve this feat?
China started exporting photovoltaic (PV) cells to Europe, just two years after it established its first domestic PV cell production line in 2002. By 2008, the export capacity reached 3,940 megawatts.
However, after a decrease in demand due to the 2008 financial crisis, China decided to subsidise solar companies to boost the industry. Several projects like the Golden Sun project helped expand the solar capacity in China. This was supplemented by cheap capital, leading to overcapacity and wasted investment.
China had absolute domination over the solar manufacturing sector, with exports accounting for 7,500 MW in 2010.
Over the years, the country has developed an extensive and optimised manufacturing infrastructure aiding large-scale production at a minimal cost per unit. The production cost of solar modules in China stands at around $0.15 / watt (around Rs 12.5), which is significantly cheaper compared to other major countries. In fact, the cost of solar PV components produced in China is around 10 per cent lower than in India, 20 per cent lower than in the United States, and 35 per cent lower than in Europe.
The advancements in the domestic market are complemented by a strong demand for domestically manufactured solar modules, helping sustain the internal production capabilities.
Another factor contributing to the reduced costs is China’s stronghold on rare earth elements that are essential for clean renewable energy technology. China has established supply chains for local sourcing of raw materials, cutting shipping costs and import taxes, hence reducing total production costs.
Labour costs in China are lower compared to Western countries, ensuring a much more affordable labour force. Solar manufacturing includes certain energy-intensive processes and Chinese electricity prices are about 30 per cent below global average.
Advanced technologies in production processes also enhanced the efficiency in manufacturing, and facilitated waste reduction. All these factors lead to reduced costs of production over time, and some reports estimate that module production costs in China have decreased up to 42 per cent between December 2022 to December 2023 alone.
Where does India stand?
India has expanded its solar manufacturing capacity substantially over the past decade, with solar PV module manufacturing capacities expected to reach 95GW by the end of 2025, according to a report by Bengaluru-based clean energy consulting firm Mercom India.
The country is looking to expand its manufacturing capacities in the coming years with considerable investment in research and development. States are endorsing domestic solar manufacturing through various policies.
The Production Linked Incentive Scheme was launched to reduce import dependence in the area of renewable energy. According to the Ministry of New and Renewable Energy, the scheme “aims to build an ecosystem for manufacturing of high efficiency solar PV modules in India”. Residential solar installation prices are much cheaper in India, mainly due to government incentives.
How has the production costs of solar modules in India evolved over the past few years?
The cost of solar modules in India dramatically fell by approximately 90 per cent during the period from 2009 to 2019. However, after 2020 the prices increased by almost 18 per cent, mainly due to quadrupling of the price of Polysilicon.
The government's move to impose basic customs duty on imported solar modules and solar cells was insufficient to make the price of domestic modules competitive to imports. While an imported module retails for $0.16-0.17 / watt (roughly Rs 13-14 / watt), domestic modules are priced at about $0.27 (around Rs 23 / watt) in India.
Despite improvements in increasing its solar manufacturing capacity from 2.3 GW to 67 GW in the last 10 years, India has not yet reached China’s level, which in turn restricts the ability to attain cheaper costs of production.
The Indian manufacturing sector in general faces outdated technology, slowing the research and development in the domestic solar manufacturing sector. According to Mercom India’s India Solar Market Update Q1 2024, the average price of Chinese manufactured monocrystalline PERC solar modules fell by 48.3 per cent, while Indian ones saw a 41.7 per cent reduction — China leading by almost a 6.5 per cent difference.
The domestic market in India has limited capacity when it comes to solar cells, polysilicon, wafers and ingots. The industry is still dependent on imported components for manufacture, making it vulnerable to supply shocks.
India faces higher raw material costs, with domestic solar modules being around 10 per cent more expensive than imported ones. Smaller production scales and existing facilities operating below potential due to lack of demand for locally produced solar modules require attention. With Chinese imports being cheaper, it is still the preferred option in many cases.
As per the National Solar Energy Federation of India, cell and module manufacturing capacity is projected to reach 100GW and 150GW respectively, and the overall solar supply chain (modules, cells, wafers, ingots and polysilicon) in India is expected to reach 400 GW by 2028.
Government’s move to source all solar cells domestically from April 2026 onwards is a great step to control the dependence on imports, however, major policy changes are required to fully utilise India's solar manufacturing potential.
The projected target can only be achieved by a combination of efforts, including reduced reliance on imports, use of quality raw-materials, incorporating efficient technology, continuous investment and vertical integration of the supply chain. Focusing on improving the quality of domestically manufactured solar modules is crucial to uplift the sector.