Mitigating supply chain challenges for solar projects 

A reliable supply chain and stable market conditions are crucial to sustain a rapid transition to clean energy. Unfortunately, renewable energy markets have displayed increased volatility due to the instability of raw material supplies, price fluctuations, and frequent regulatory alterations.

The impact was visible during the Covid-19 crisis, specifically due to global reliance on the Chinese supply chain.

Historically, China has been at the forefront of solar PV production and distribution, commanding 80% of the global market share. This is a two-sided coin: On one hand, it results in the affordability of PV systems for many regions. On the other hand, China is a price setter for many emerging markets, including India.

Some statistics from IEA’s report on Solar PV Global Supply Chains illuminate this further:

• Cost of modules in China is 10% lower than in India
• In 2021, China held 75% of the global market share for modules, 85% for cells, 97% for wafers, and 79% for silicon. India held 2.2% of the global market share for modules, 1.1% for cells, and negligible for wafers and silicon
• China plans to add 800+ GW of new manufacturing facilities to meet the increasing demand
• In 2021, India imported 75% of its total PV module requirement from China. Chinese PV exports accounted for 62% of all module-related exports worldwide
• India ranked 3rd globally in transport-related CO2 emissions from its Chinese PV imports

Note that some of this data may be outdated since the imposition of duties and the PLI scheme, which are expected to have improved India’s manufacturing capabilities. At the same time, China has significantly increased its manufacturing capacity as the investment cost is three times lower than major markets.

Solar installers in India face significant hurdles in securing their supply chains.

Firstly, the sharp rise in shipping costs, particularly for containers originating in China, where the majority of solar panels are produced, has placed significant strain on the industry.

Secondly, key solar panel inputs, specifically silicon, the primary material utilized in producing solar cells, have experienced marked increases in costs, further exacerbating the situation.

Thirdly, the imposition of import duties on solar modules and cells has caused a spike in ‘made-in-India’ module prices as Indian manufacturing is still not completely independent of Chinese imports.

Additionally, the fundamental components essential for solar cell production have witnessed a notable escalation over the preceding six months, with aluminum demonstrating a hike of 40% in the antecedent 3-4 months. The cost of silicon and ethylene-vinyl acetate (EVA) sheets has increased by 40-50%.

Notably, module prices rose a significant 50% from the end of 2019 to mid-2023 for the first time in ten years in the Indian solar market. However, since July 2023, the market has seen a stark drop in module prices, with forecasts of an increase in the following months. This uncertainty has cast a shadow on the growth of RE assets in India.

The supply chain disruptions have affected the solar project timelines and increased the overall project costs. The principal strategy developers and EPC installers adopt is taking advantage of the price drops and stockpiling modules. Smaller installers, however, suffer the most, which leads to varying EPC costs.

Companies and governments are working together to optimize supply chain strategies, diversify supply sources, and invest in local manufacturing to mitigate the impact of these disruptions and ensure the timely implementation of renewable energy projects. Around 39.6 GWp of PV manufacturing facilities are likely to be set up by 2025 or earlier by both large developers and manufacturers in India. For instance, ReNew has announced backward integration, and Reliance has entered the solar market through PLI Scheme for PV manufacturing.

Notwithstanding, the LCOE for rooftop solar may remain INR 4.5-5.5/unit for some time, even if we presume domestic autonomy is achieved through capacity building in manufacturing, solar manufacturers receive energy subsidies, and developers gain access to cheaper capital. While it is still 40-50% lower than the price of electricity from conventional sources in most state, consumers are expected to be the worst off in the shot-term as the welfare distribution from import duties have been passed to the producers and government.