Supply Stress On Solar Panels To Rise With New Cess Offsetting Import Duty Cut

Supply pressure on solar panels is expected to increase as the reduction in import duty has been offset by a higher Agriculture Infrastructure and Development Cess (AIDC). This reversal maintains the status quo, keeping import duties at previous levels. The government, during the Budget 2025, halved the import duty on solar panels to 20% from 40% and reduced the duty on solar cells to 20% from 25%, but raised the AIDC by 20% and 7.5%, respectively, keeping overall import duties unchanged.

The government aims to support domestic manufacturers and fund agriculture infrastructure, but solar developers say restricting foreign manufacturers from the approved list of models and manufacturers (ALMM) has made domestic panels uncompetitive, affecting supply.

The government's intent is to support domestic manufacturers and divert funds towards agriculture infrastructure development. However, solar developers argue that excluding foreign manufacturers from the approved list of models and manufacturers (ALMM) has made domestic panels uncompetitive, putting supplies under pressure.

Industry experts estimate that around 30-40 GW of solar capacity is stuck due to supply shortages, as domestic manufacturers struggle to meet demand. Chinese solar panel manufacturer Jinko Solar's executive vice president, Manish Narula, revealed that the company received enquiries for 10 GW of solar panels from developers who were unable to source panels from domestic manufacturers after winning the projects and signing the power purchase agreements.

Narula emphasised that allowing imports and participation of foreign players would solve the current shortage situation and make domestic panels more competitive. Industry experts warn that India's renewable energy targets, including achieving 500 GW by 2030, are at risk due to these supply constraints.

Jinko Solar is not part of the approved list (ALMM) announced by the Ministry of New and Renewable Energy (MNRE) despite getting the BIS certification as well as pre-inspection of their various manufacturing plants for 40GW TOPCon (Tunnel Oxide Passivated Contact) capacity. “We have completed all the formalities and are awaiting the final visit to the manufacturing facility for inclusion in the ALMM,” Narula said.

Domestic solar panel manufacturers are underutilising their nameplate capacity and are booked for the next one to two years. Moreover, they export a significant portion of their production to the US and Europe, where margins are higher. "Allowing imports and foreign player participation would address the current shortage and make domestic panels more competitive," said Narula.

India is struggling to meet its renewable energy targets, aiming to achieve 500 GW by 2030. The solar target is set at 300 GW, with only 100 GW achieved so far, leaving a gap of 200 GW to be met at a rate of 40 GW per annum over the next five years. It should be noted that India's peak renewable installation has never crossed 15 GW in a year.

According to Tanmoy Duari, MD of AXITEC India, "The last quarter in India is the busiest quarter, and companies want to get accelerated depreciation benefits; hence, there is a surge in demand. But there isn't adequate Indian manufacturing capacity to take care of this demand."

Experts have emphasised that allowing foreign players to participate under the Approved List of Models and Manufacturers would eliminate shortages and help reduce domestic panel prices in the near term till India achieves its required capacity.

Rupesh Sankhe, VP and power sector analyst at Elara Securities, said, Supply constraints will exist for the next two to three years as the 100 GW capacity tendered by the centre/states in FY24 has put additional pressure on manufacturers.

"The manufacturers will take at least two to three years to reach 100 GW capacity from 70 GW at present. Besides that, India exported around 7 GW of modules, which was 50% of the total installations of 15 GW in FY24," Sankhe said, adding, "There is a possibility of demand and supply getting streamlined in the next three years' time once India's manufacturing capacity increases to 125 GW. Then manufacturers will be able to meet the domestic demand without delays," he said.