This background paper is part of the edited volume India’s Role in Diversifying Global Clean Energy Supply Chains.
Background Paper No. 22
BY Gregory Wischer
SUMMARY
Electricity from solar photovoltaic modules is an important and increasing part of many countries’ energy mix. Currently, China and Chinese companies dominate the manufacturing supply chain for solar photovoltaic technology, from the polysilicon to the solar modules. Yet, countries are increasingly concerned about overdependence on China and thus are seeking to diversify the sourcing of their solar photovoltaic inputs. India has existing production and latent potential to serve as an alternative supplier to China in the solar photovoltaic supply chain, especially for solar cells and modules. International cooperation, like concessional financing, could help Indian companies develop upstream production capacity in polysilicon, ingots, and wafers, and international cooperation could also help finance renewable energy projects, which could power solar-related manufacturing projects and reduce their electricity costs.
1. INTRODUCTION
Electricity from solar photovoltaic (PV) modules is a key, and growing, part of many countries’ energy mix. Converting sunlight into electricity benefits many countries by growing electricity access, supporting decarbonization efforts, and increasingly, lowering electricity costs. Geopolitically too, countries that deploy solar PV modules strengthen their energy security if it displaces imports of other energy sources like coal or natural gas. Thus, many countries, including India, Brazil, China, the European Union, and the United States, are pursuing wide-scale deployment of solar PV modules. In fact, solar PV technology represented 56 percent of all global electricity capacity additions in 2022, and solar PV’s installed power capacity is projected to be the largest of any power source by 2027, surpassing coal.
Currently, the manufacturing supply chain for solar PV technology is dominated by China and Chinese companies, many of which also operate in Southeast Asia. In 2023, China’s share of global manufacturing capacity in each solar PV supply chain segment was 75 percent or more, and its future share of global manufacturing capacity across the solar PV supply chain is forecasted to range between 80 percent to 95 percent. Most countries’ solar PV policies prioritize wide-scale solar deployment and thus low-cost solar modules, making them heavily reliant on Chinese-produced inputs. China’s dominance can be partly attributed to significant state support, which has given Chinese companies lower production costs versus foreign competitors.
However, relying on a few suppliers from one country poses risks, including supply chain risks. If Chinese solar companies face production issues or if the Chinese government restricts exports of solar PV inputs, many countries would be unable to deploy cheap solar at scale, undermining targets for energy access and renewable energy deployment. Importantly, high reliance on China for solar PV inputs also subverts labor and environmental protections. China’s Xinjiang Uyghur Autonomous Region produces nearly 45 percent of the world’s polysilicon for solar PV modules, and all of the region’s major polysilicon manufacturers have participated in Chinese government programs associated with forced labor.
Thus, several countries, especially those concerned with overdependence on China like the United States, are seeking to diversify their sourcing for inputs in the solar PV supply chain. India is one such alternative supplier, and it too is seeking to diversify its solar PV supply chain. Already, Indian solar module exports have increased by more than five times from fiscal year 2022 to 2023, and the overwhelming majority of India’s solar module exports go to the United States. Moreover, India’s solar-related production-linked incentive (PLI) scheme, which provides incentives to companies to produce solar-related components in India, will further bolster India’s production and export capacity across the solar PV supply chain. Consequently, India could become an alternative global supplier to China for solar PV cells and modules, and potentially upstream inputs like polysilicon, ingots, and wafers too.
2. The Solar PV Supply Chain: Contextualizing India
The most common type of solar PV module is the crystalline silicon module. The other major type is the cadmium telluride thin-film PV module, but it comprises less than 5 percent of global solar PV production. For crystalline silicon modules, the core material is indeed silicon. The supply chain begins with converting silica minerals like quartzite into metallurgical-grade silicon, which is then transformed into polysilicon. This polysilicon is next turned into an ingot that is cut and sliced into wafers. To create a solar cell, the wafers are cleaned, textured, and doped with various gases, liquids, and materials. Solar cells are then assembled to form a solar PV module. This supply chain can be represented in the following four-step process:
Polysilicon
Ingots/wafers
Cells
Modules
Source: Author adaptation from McKinsey analysis.
While China has commanding production shares in all segments of the solar PV supply chain as shown in Figure 2, India is seeking to increase its production capacity. In 2023, China produced approximately 91 percent of the world’s polysilicon for solar PV modules, while India had 0 percent of global production capacity for polysilicon in 2024, which is partly attributable to India’s high energy costs. The most common process for producing polysilicon is the Siemens process, and it uses extreme heat and consumes significant amounts of electricity, necessitating low-cost electricity. In fact, electricity represents an estimated 40 percent of the production costs for polysilicon.
China’s production dominance continues into the production of ingots and wafers. As of 2024, China produced more than 97 percent of the world’s ingots for solar PV modules. Presently, India does not have commercial production of silicon ingots, although Adani Solar announced in 2022 that it had produced a monocrystalline silicon ingot. The company aims to produce 10 gigawatts (GW) of ingot capacity by 2025, and by 2026, India may have an estimated ingot production capacity of 56 GW. China also produced 97 percent of the world’s wafers for solar PV modules as of 2024, and again, India lacks commercial production of wafers for solar modules. For both ingot and wafer manufacturing, raw materials like polysilicon represent 32 percent of costs, while energy comprises 28 percent of costs and labor constitutes 8 percent of costs. India’s relatively high electricity costs contribute to its lack of ingot and wafer manufacturing too.
China controls most of the world’s production of solar cells, an estimated 80 percent as of 2024. In March 2023, India had 6.6 GW of production capacity for solar cells, representing less than 1 percent of global production capacity for solar cells. Current Indian companies producing solar cells include, among others, Adani Solar, Jupiter, Premier Energies, Tata Power Solar, and Webel Solar. India faces workforce challenges with solar cell manufacturing given a lack of skilled labor capable of installing and operating advanced equipment at solar cell plants.
Lastly, China holds a commanding share of global solar module production. In 2023, China produced 83 percent of the world’s solar PVmodules. Countries in Southeast Asia, like Vietnam, Malaysia, and Thailand, partially comprise the remaining production share, but Chinese companies often own this production. In March 2023, India had 38 GW of production capacity for solar modules, comprising approximately 3 percent of the global production capacity. Current Indian companies producing solar modules include Waaree, Adani Solar, Vikram Solar, Goldi, and RenewSys. Notably, by 2025, India is projected to be the largest module producer outside of China. Yet, India largely relies on imports of solar cells and components from China to make its solar modules.
3. India’s Competitive Advantages and Disadvantages
India is well-positioned to become a global supplier of solar cells and especially solar modules given its relatively low labor costs and existing economies of scale, as well as increasing domestic and overseas demand for India-made solar cells and modules. Domestically, India’s installed solar PV capacity was 75.6 GW in February 2024, but India is targeting 300 GW of solar PV capacity by 2030, necessitating a significant buildout of solar projects. This 2030 deployment target should provide reliable demand for domestically produced solar PV modules, especially with India’s Approved List of Models and Manufacturers (ALMM) requiring government and government-assisted projects — which represent about 70 percent of India’s module demand — to source India-made solar PV modules. The ALMM order was reimposed on April 1, 2024, after it was suspended for the 2023–2024 fiscal year to allow Indian solar project developers to use cheaper Chinese solar modules in their projects and ostensibly to enable quicker deployment of solar PV projects. Therefore, the ALMM should help increase demand for India-made solar modules and incentivize Indian module production.
India also has imposed a 40 percent basic customs duty on imported solar modules and a 25 percent basic customs duty on imported solar cells, which should have helped increase the cost-competitiveness of India-made cells and modules versus imported cells and modules. However, solar cells and modules can enter India tariff-free from countries with whom India has free trade agreements, resulting in Chinese-made solar modules and cells entering India tariff-free through countries like Vietnam and Malaysia. While India’s imports of solar modules are expected to increase from 2023 to 2024, the ALMM should help stem this trend by requiring government and government-assisted solar projects to source solar modules from India and solar cells from approved producers.
The export market is and will be a key source of demand for Indian solar PV cells and modules, particularly in case of limited Indian demand for India-made solar PV cells and modules due to lower-priced and higher-quality Chinese-produced products. Indian exports of solar cells and modules have already been increasing, with solar cell and module exports increasing over 1,000 percent from the April–July 2022 timeframe versus the April–July 2023 timeframe. Just as China’s solar PV production features significant exports because domestic production exceeds domestic demand, India’s solar PV production could also heavily feature exports, especially to countries with high targets for installed solar PV modules, relatively low solar PV module manufacturing capacity, and a desire to diversify imports away from China.
India’s solar PV exports will face stiff price competition due to the global overcapacity of solar PV products, largely caused by Chinese production. For instance, Chinese solar PV modules cost $0.11/watt (W) while Indian solar PV modules cost $0.22/W. However, Indian modules will still be price competitive in countries like Germany, where the average cost of installing residential solar is approximately $1.70/Watt. In other words, solar PV modules comprise a minority share of overall costs; thus, price discrepancies between solar PV modules from China and India have a correspondingly minor impact on overall costs. Some companies may also consider sourcing the more expensive Indian modules due to their lower supply chain and reputational risks versus sourcing modules from China. Indian solar PV exports could be especially price competitive in countries with import duties on solar PV cells and modules produced in China and other countries seeking to circumvent such tariffs, namely Southeast Asian countries.
In the downstream supply chain like solar modules, India is competitive with China on the investment costs for solar module production too, yet India’s higher operating costs due to higher energy costs and lower labor productivity make solar module manufacturing 9 percent more costly in India than in China. These variable costs could decrease as Indian companies increase their economies of scale in solar-related manufacturing. Importantly, India’s relatively low costs mean India could become a key low-cost alternative supplier of solar PV modules for Western countries seeking to diversify their imports away from China. Indeed, Indian products comprised about 9 percent of the volume of U.S. solar imports in the first eleven months of 2023.
In the upstream supply chain like polysilicon, India has lower investment costs than Europe and the United States, positioning India as an alternative supplier to China in these products too. India will, however, face greater challenges in becoming a global supplier of polysilicon, ingots, and wafers. These inputs are more capital-intensive, energy-intensive, and technology-intensive than solar cells and modules, resulting in greater capital expenditures, operating costs, and technical complexities. For example, new Chinese polysilicon plants with annual production capacities of 100,000 metric tons have average investment costs of $1.2 billion. Globally, ingot and wafers plants have investment costs ranging from $300 million to $1.2 billion depending on their production capacities, although the Chinese company Trina Solar announced in 2023 that it would build a 25 GW, $1.55 billion monocrystalline ingot factory in Sichuan province. Similarly, the Chinese company JA Solar announced that it would invest $870 million in an integrated solar project with an annual production capacity of 30 GW of ingots, 10 GW of wafers, and 10 GW of modules.
Compounding the challenges of capital intensity, solar PV projects face long lead times in commissioning and ramping up production, which delays revenue generation. Estimated lead times from project announcement through to commissioning for polysilicon plants in India are approximately 18 to 30 months, and these plants also have a long ramp-up until they meet nameplate capacity. Downstream projects have less lead time, meaning they generate revenue more quickly and pose less investment risks. Lead times for ingot and wafer plants in India are 8 to 20 months, while lead times for cell and module plants in India are 5 to 11 months.
4. Vertical Integration
Despite these upstream challenges, India should still seek to produce polysilicon, ingots, and wafers as it will enable vertical integration and reduce India’s import reliance on China, better positioning India as a true alternative supplier to China. Already, the Indian companies Indosol Solar (a special purpose vehicle of Shirdi Sai Electricals), Reliance New Energy Solar, Adani Infrastructure, and FS India Solar Ventures intend to build integrated solar PV production facilities, which encompass production from the polysilicon to the modules. Companies with vertically integrated facilities in the solar PV supply chains increase their price competitiveness because it decreases variable costs, such as transportation costs. Consequently, vertically integrated companies are more profitable than pure-play companies that focus on one supply chain segment. For example, Canadian Solar, a Chinese company, is in the world’s top ten companies for the largest market shares in wafers and cells and modules. Therefore, vertically integrated Indian solar companies should be more competitive globally.
Indian vertical integration, especially the production of polysilicon, ingots, and wafers, will help reduce reliance on Chinese companies too. For example, the majority of Indian companies awarded PLI incentives rely on Chinese equipment suppliers. To illustrate, the Indian solar company Waaree listed seventeen supply chain partners, and all seventeen partners are Chinese companies. To further reduce reliance on China, India should also seek to develop production capacity in metallurgical-grade silicon, which is created from silica minerals. India produced no metallurgical-grade silicon in 2023, yet without the production of its own metallurgical-grade silicon, Indian polysilicon producers likely are forced to rely on Chinese suppliers: China produced 79 percent of the world’s metallurgical-grade silicon in 2023. In 2021, India produced 12 million metric tons of silica minerals, but India’s high energy costs currently make the production of metallurgical-grade silicon “uneconomical” in India.
5. International Cooperation
International cooperation, like concessional financing, could help Indian companies develop upstream production capacity in polysilicon, ingots, and wafers, and international cooperation could also help finance renewable energy projects, which could power solar-related manufacturing projects and reduce their electricity costs. As previously noted, the most challenging segments for vertical integration are the production of polysilicon, ingots, and wafers due to their high capital expenditures and high electricity demands. However, high industrial electricity prices, rather than capital needs, pose a greater challenge in expanding such production capacity because Indian companies like Adani Solar have substantial capital, especially when paired with government incentives, for building production facilities. Therefore, with international partners like the United States International Development Finance Corporation (DFC), India could collaborate on building renewable energy facilities that support production in the solar PV supply chain, such as polysilicon, ingots, and wafers. Already, the DFC has lent nearly $1 billion for solar cell and module production in India.
Renewable energy could also lower the carbon emissions and electricity costs of Indian manufacturing in the solar PV supply chain. Solar modules only need to operate for four to eight months to offset their supply chain emissions, but a wholly Indian solar PV supply chain in the short term would be an estimated 15 percent more emissions-intensive than in China given India’s high reliance on coal. However, India has a largely open-access regime with its power grid, which means solar-related manufacturers can opt to buy renewable energy directly from the grid (or build their own renewable energy generation) and lower their carbon emissions. For instance, First Solar’s factory in India will mainly use wind and solar electricity, despite India’s overall grid relying primarily on fossil fuels. With lower carbon sources of electricity like international-backed solar, wind, and storage projects, India’s solar PV supply chains could lower their emissions intensity. Ultimately, cheaper renewable electricity could enable India to produce cheaper solar-related components with lower carbon intensity, especially in the electricity-intensive upstream segments of the solar PV supply chain.
This international cooperation could specifically target Indian states with the best conditions to support projects in the solar PV supply chain. Gujarat, for example, represents a high-potential location for vertically integrated solar PV production and renewable energy projects. It is the destination for almost 57 percent of India’s future solar module capacity, and its low renewable electricity prices, high grid reliability, and easy port access make it an attractive location for solar-related projects, including for upstream supply segments like polysilicon. Indeed, Adani Solar’s production of India’s first monocrystalline silicon ingot occurred at its Mundra plant in Gujarat. Other Indian states with existing solar cell and module production as well as strong renewable resources are well-positioned for vertical integration with upstream production, including Telangana, Rajasthan, and Tamil Nadu.
6. Conclusion
India has existing production and latent potential to serve as an alternative supplier to China in the solar PV supply chain, especially for solar cells and modules. It will, however, face greater challenges in becoming a global supplier of polysilicon, ingots, and wafers, which are more capital-intensive, energy-intensive, and technology-intensive than solar cells and modules. Nonetheless, Indian companies should still seek to produce polysilicon, ingots, and wafers as it will facilitate vertical integration and reduce import reliance on China. International cooperation, like concessional financing, could help Indian companies develop upstream production capacity in polysilicon, ingots, and wafers, and international cooperation could also help finance renewable energy projects, which could power solar-related manufacturing projects and reduce their electricity costs.
Acknowledgements
The author is grateful to Alexander Hogeveen Rutter and Shayak Sengupta for their detailed comments and inputs to an earlier draft of this paper. Any errors that may remain are the author’s alone. The paper is part of ORF America’s Climate and Energy Program work supported by the ClimateWorks Foundation. This background paper reflects the personal research analysis, and views of the author, and does not represent the position of their institution, their affiliates, or partners.
Note: The footnotes can be found in the PDF file.