India’s ambitious goal of producing more renewable energy, including through solar, than its entire current grid, is getting a rude jolt from Chinese solar photovoltaic modules manufacturers as many are alleged to have reneged on their supply contracts, leading to an escalation in prices of the panels that are critical for solar power generation.

With more than 80 per cent of India’s solar PV module market being controlled by Chinese suppliers, the domestic engineering, procurement and construction (EPC) companies are hit with amplified costs, with several of their clients opting to defer projects.

Margins disrupted

Bahadur Dastoor, Chief Financial Officer, Sterling & Wilson Renewable Energy, said, “We have seen PV module prices rising 50-60 per cent over the last 18 months. All solar EPC contractors and developers across the globe have been affected by this price hike. Chinese module suppliers have asked for multiple price amendments and reneged on the same. These include Tier 1 suppliers.”

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Forty per cent stake in Sterling & Wilson Renewable Energy (SWRE), a Shapoorji Pallonji group company, is owned by Reliance New Energy, a subsidiary of Reliance Industries. SWRE is one of India’s leading solar energy EPC solutions providers with operations in Middle East, Africa, Europe, Australia and the US.

The government had aimed to achieve 100 GW of solar installation by 2022, but as per the Ministry of New and Renewable Energy, the country has achieved only 51 GW of solar power by February 2022. By 2030 the government aims to have an installed capacity of 280 GW of solar power.

Rising cost of solar panels has not only led to disrupted margins of companies but upset timelines of customers also. EPC firms claim that their clients are delaying project implementation dates in the hope of a reduction in module prices.

Uncertainty around ALMM policy

Manjesh Nayak, Co-founder and CFO, Oorjan Cleantech, said, “India has just 3 GW of cell manufacturing capacity as of today. China, in comparison, has a 350 GW capacity. We don’t stand a chance right now. During pre-Covid levels, the panel costs were ₹18-19/Wp. Indian manufacturers are quoting higher panel prices than Chinese. Chinese ones are quoted at ₹27-28/Wp whereas Indian panels are sold at close to ₹30/Wp.” 

“Using various forms of negotiation, we have managed to reduce the losses to the extent possible but the hit has however been huge in the cost of modules,” Dastoor added.

A few weeks ago, the government decided to defer the policy implementation under the Approved List of Module Manufacturers (ALMM) by six months to October 1. This policy requires all government solar projects and non-government projects for net metering and open access to use panels listed only in ALMM. This essentially means that Chinese firms can continue to supply to all projects in India. The extension, though, has brought little relief.

“The uncertainty around ALMM policy and the increase in basic customs duty (BCD) are negatively impacting the market. This gives way to black marketing and hoarding. Dealers are also holding onto the inventory and not giving it to EPC companies. Right now, customers are buying time and we are also going slow on projects,” said another top executive of a solar energy EPC firm.  

India hiked BCD on modules to 40 per cent and 25 per cent on cells at the start of April, in an attempt to discourage imports and give local production a manufacturing boost.