Why Solar Module Prices Are Rising in India

MNRE has confirmed that India has a solar cell manufacturing capacity of 3GW per year. But India does not have any capacity of manufacturing polysilicon, wafers, or ingots. All these come from China. The demand and supply gap is putting a lot of pressure on commissioned solar projects.

May 09, 2022. By News Bureau

Domestic solar panel prices have risen by more than 50% in the last two months, to above Rs 30 per watt peak.
Solar panel prices have climbed 8% to 9% in the last month since the outbreak of the Russia-Ukraine crisis, and the cherry on the top was the implementation of increased Basic Custom Duty on solar panel imports.
With the establishment of a baseline customs tariff of 40% on solar modules and 25% on solar cell imports beginning April 1, the cost of solar panels has risen even higher.
If we do a cost analysis, then we will find that the cost of a solar cell is around 50% of the cost of the solar module. This means if the price of solar cells rises, then the total cost of the solar module will rise on its own.
The cost of solar panels has grown by 15% since the outbreak of the conflict, owing to a 15% increase in the cost of solar cells, which account for roughly half of the cost of solar panels. 
If we follow the official news by MNRE then India has a solar cell manufacturing capacity of 3GW per year. But India does not have any capacity of manufacturing polysilicon, wafers, or ingots.
Due to a variety of factors like the lack of indigenous cell production capability in India and a reliance on imported raw materials such as polysilicon and wafers, India is significantly reliant on imported solar cells.
Domestic panel prices are on pace with or even higher than imported panels from China, prompting many developers to postpone projects that have become unprofitable due to the rates locked into current power purchase agreements.
To help domestic solar manufacturers increase their manufacturing capacity, the government placed a 40% import charge on solar panels and a 25% duty on solar cells from April 1, 2022. In the meanwhile, the solar sector is expected to be hit by a double jinx of rising commodity prices and the application of import tariffs on both developers and manufacturers.
Up to 85% of the Indian Solar requirements were China-dependent as Indian lack the manufacturing capability. They provided raw materials like cells, polysilicon, and ingots to the makers. However, the levies, combined with increasing raw material prices, have boosted domestic manufacturers' input costs, making local panels more expensive. Due to the 40% tariff, Chinese panels have become very expensive for solar developers or EPC players.
As a result of the dramatic increase in input costs, Indian solar manufacturers have been obliged to raise panel pricing. The 25% tariff on cells equates to 12.5% of the panel's cost. Higher commodity and rising shipping costs and supply timeline are also contributing to this price rise.
One thing the industry is missing is a lack of demand, which is having a significant influence on marketing. Developers have halted their projects, and there is minimal demand on the market. Solar developers are hesitating from signing these high-rate PPAs. 
Indian firms today have adequate manufacturing capacity and cutting-edge technology, but they require strong domestic demand.
If the import duty on panels cannot be lowered, then the solar developers or EPC players may ask for a remedy in the form of a reduction in GST on projects. The influence of the Approved List of Models and Manufacturers (ALMM) policy, along with the higher goods and services tax (GST) and insufficient local manufacturing capability are the primary reasons for the panel price instability. 
These policies appear to have been implemented ahead of their fixed schedule. It seems like the Indian govt is in so a hurry that they are not considering how this will impact their solar targets. To alleviate the problem, policies must be reviewed immediately and production capacity must be built.
Now let’s understand its impact on the Indian Solar Industry.

Market conditions forced one significant project developer, Norway's Scatec, to rethink its plans for a solar project in Rajasthan that it was collaborating on with an Indian partner.
Due to a lack of domestic solar panel supply and a 40% import levy on solar panels, Scatec and Acme have decided to put the 900 MW project in India on hold. The majority of India's 50 GW solar capacity is in the commercial and industrial sectors, but the residential sector has recently seen rapid growth. According to another developer, here is where the hike in solar panel prices will be felt the most.
When it comes to solar cells and modules imported into China, China has the biggest market share at about 90%, followed by Hong Kong and Malaysia. Stakeholders in the business have expressed fears that if domestic manufacturing fails to satisfy expanding demand, the sector may be forced to rely on imports. As a result, solar module procurement will be more expensive, resulting in an overall increase in the cost of solar projects.
Private investors in Indian solar projects typically sign PPAs for eight to ten years. The EMI will rise as a result of the higher price, which the client would not like.
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