India’s Ministry of Commerce and Industry has terminated on Nov. 9 an investigation into circumvention of anti-dumping duty on imports of solar cells and modules from China, Vietnam, and Thailand, following a complaint by the Indian Solar Manufacturers Association filed in May 2021.
In fact, the biggest contradiction that limits the country’s solar development is not the anti-circumvention probe, but the basic customs duty (BCD), which imposes 25% tariffs on cells and 40% on modules. Solar export volume to India has dropped sharply after the BCD took effect in April.
According to InfoLink’s China customs database, India imported less than 150 MW of modules in average every month since April. Prior to the introduction of BCD, India saw stockpiling activities, having imported more than 8 GW of modules from China in just three months. This is one evidence of the significant impact of BCD. The country also stocked up cells in early 2022, having imported around 2 GW over the first three months of the year. Although cell import volume has declined after the implementation of BCD, there’ still around 200 MW of monthly imports, higher than last year’s level. The data suggests the BCD has smaller impact on cells compared with modules and demonstrates the country’s capacity ramp.
As of the second half, newly installed module lines have come online one after another, while cell production lines also increased. India also starts switching to produce M10 mono-Si cells from late 2022. As it takes time to adjust cell lines, manufacturers are expected to expand module capacity first and purchase cells to meet local demand before local supply chain becomes mature. From a timeline perspective, the BCD is the major factor that impacts the Indian market, whereas anti-dumping investigation makes no significance to the market.
Graph: China exports of cells and modules to India
The draft NEP22 published in September set a 186 GW and 333 GW of solar installation target for 2027 and 2032, respectively, indicating the country’s dedication to developing renewable energy. The long-term demand is huge, but the current trade policy restricts imports. Coupled with high module prices, developers chose to postpone projects, while many historic projects have been accumulated. This results in severe short supply and disrupts installations. Although projects auctioned before March 2021 can apply for extension, they still need to be completed by the first quarter of 2024. Against these backdrops, demand will sustain next year despite unfavorable trade environment, coming in at 10 GW to 15 GW.
The BCD is intended to safeguard the domestic solar industry. As Minister Raj Kumar Singh of the Ministry of New and Renewable Energy described, India’s heavy dependence on Chinese exports is “unhealthy,” and improving domestic supply is needed for India to meet its ambitious capacity target. However, there was not enough time for local manufacturers to build local capacity before the imposition of BCD, which then pushed up module manufacturing costs and limits the development of solar industry.
Currently in India, the Production-Linked Incentive (PLI) scheme launched in April 2021 is the major driver behind capacity expansion. The government originally approved the PLI scheme with an outlay of INR 45 billion, which then increased to INR 195 billion. And indeed, India saw an upward trend in capacity in the second half of the year, but actual production will still fall short of demand in the short term. Moreover, most of the capacity expansion are module projects. Cell expansion is slow due to high capex, technology roadmap selection, and the time required for production lines adjustment. Therefore, cell supply will be one big short-term challenge facing the Indian supply chain.
Attention should also be paid to the Approved List of Models and Manufacturers (ALMM) introduced this April. As per the ALMM order, only the listed solar PV models and module manufacturers can be used for government projects in India. However, capacity of the listed manufacturers is unable to meet the market’s potential demand. The implementation of policy was postponed for six months earlier this year, showing that the Indian government would adjust depending on market conditions for its decision between developing solar and supporting domestic capacity. Overall, ALMM will not make much impact until the second half of 2023.
Given the existing policies, supply will run short in India. The short-term demand may decline slightly to 10-15 GW due to policy uncertainty. Yet, its potential demand looks promising for the long-term driven by energy transition. It’s expected that the average demand will pick up and increase to 16 GW to 20 GW from 2024 to 2026. 2023 is a pivotal year for market and domestic supply chain development, for the government may shift policy or relax rules in response to the progress of renewables development, allowing the market to recover.
InfoLink estimates there will be 14-19 GW of cells produced in India and 30-35 GW of modules in 2023, a YoY increase of at least 10% and 20%, respectively. With labor cost advantage and shorter geographical distance from China that can save transport costs, India could be the next solar manufacturing hub and change the global PV industry landscape if things go smoothly. India will remain one of the major solar markets in the future.