India’s solar cell manufacturing capacity is set to surge five-fold to 50-55 GW by FY27 from 10 GW at the end of FY24, propelled by the government’s push to reduce imports of solar cells and modules, according to CRISIL.

The research agency stated in an official release that this expansion will require a capital investment of ₹28,000-30,000 crore, funded through a 70:30 debt-equity mix. Despite the significant expenditure, robust cash accruals and strong balance sheets will help maintain credit quality.

To boost domestic production, the government has mandated the use of cells only from its approved list of manufacturers in open access, net metering projects, and other government-supported initiatives. “These measures have led to capacity expansion announcements of 45-50 GW, which will take India’s overall solar cell manufacturing capacity to 55 GW over the next two fiscals,” said Ankit Hakhu, Director, Crisil Ratings.

A CRISIL study of four key domestic manufacturers, which account for 54% of India’s total solar cell production as of March 31, 2024, corroborates this trend. India’s module manufacturing capacity has also grown significantly, reaching 60 GW by March 2024, up from 7 GW in March 2020. This has helped reduce module imports to 25% of total consumption this fiscal from 45% in the last.

However, import dependency on solar cells, mainly from China, remains high at 80%, with domestic supply falling short of demand. With 60-65 GW of solar capacity expected to be added by FY27, CRISIL warns that import reliance could increase further.

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Encouragingly, domestic module manufacturing is increasingly supported by local cell production, which is projected to rise from covering less than 15% of domestic module capacity in FY24 to over 50% by FY27. Despite high capital expenditure, CRISIL projects a stable annual capex intensity of 1.3-1.5 times till FY27, similar to the past three years’ 1.2 times.

“Healthy demand and robust operating margins backed by the ALMM policy will ensure a strong payback period of 4-5 years for new investments,” said Ankush Tyagi, Associate Director, Crisil Ratings.

However, at current price levels, domestically manufactured solar cells remain 80-90% costlier than imported alternatives due to higher conversion costs and lower economies of scale. While the Production-Linked Incentive (PLI) and other government schemes are expected to ease some cost pressures, solar project developers may still face increased project expenses.

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