22 Feb 2022

Strong Demand Outlook for Domestic Solar OEMs: ICRA

22 Feb 2022  by   
ICRA Ratings on Monday said it expects the business prospects for domestic solar original equipment manufacturers (OEMs) to remain strong aided by several policy measures over the medium-term.


Many of the domestic OEMs have announced sizeable capital expenditure to augment the cell and module capacity, including the capex for integrated facilities under PLI scheme by the winning bidders, an official statement said. However, timely commissioning and ramp-up of on-going capex in module manufacturing value chain remains a critical in the near to medium term.

As a result, adequacy of the modules from the domestic OEMs to meet the demand in utility and non-utility segment as well as quality of such modules remains a monitorable, the statement said.

“The policy focus by the government of India (GoI) in the renewable energy (RE) sector remains strong as also evident from the policy target of 500 GW of non-fossil fuel-based capacity by CY 2030 as well as policy direction in the energy transition with net zero emission target by 2070. In this context, capacity addition in solar energy segment within the RE is expected to remain significant with about 65-70% share by FY 2030, given the relatively lower execution challenges in solar segment,”ICRA senior vice president and co-group head corporate rating Girish Kumar Kadam said .

He said the GoI has a policy focus to encourage the domestic manufacturing for photovoltaic (PV) modules through various policy measures announced in last 2-3 year period such as notification of approved list of module manufacturers (ALMM) w.e.f. April 2021, imposition of basic customs duty (BCD) on imported cells & modules w.e.f. April 2022, award of manufacturing linked PPAs for aggregate capacity of 12 GW, ongoing implementation of production linked incentive (PLI) scheme as well as that of various central schemes announced earlier, requiring use of domestic modules.

“Further, ALMM list has only domestic solar OEMs and there remains an uncertainty for inclusion of foreign solar OEMs as of now,” Kadam said.

Given the strong response for the PLI scheme for solar modules, the scheme outlay has been further increased to Rs 24,000 crore from Rs 4500 earlier. This is expected to support the setting up of additional cell and module manufacturing capacity of up to 40 GW. The module manufacturing units set up under PLI scheme would be eligible for receiving PLI on annual basis on sales of solar PV modules for 5 years from commissioning or 5 years from scheduled commissioning date, whichever is earlier. PLI payable will also be computed based on the volume sales, the base PLI rate, the tapering factor and the extent of local value addition.

The PV module price environment has however remained elevated over the last 10-12 month period, with the demand-supply imbalances in polysilicon as well as supply chain disruptions in China. Given that the import dependency for the OEMs is expected to continue for sourcing of key components, the pricing behaviour for polysilicon and cells in China thus remains a key monitorable, going forward.

“As a result, OEMs based on imported cells remain exposed to volatility in cell /module price levels. Based on an imported module price level of 27 cents/watt for Mono PERC modules and cell price at 15 cents/watt, the cost of module from such domestic OEMs is expected to be lower by 10-11% post April 2022, assuming the applicable BCD on imported cells/modules. However, the extent of discount will reduce, if the prices of imported cells and modules reduce from the prevailing level. From the viability perspective in case of OEMs with integrated facilities, the scale of operations, pace of technology adoption with the emerging trends in key markets such as in China/Europe as well as module price movement remain the critical factors,” ICRA vice president and sector head – corporate ratings Vikram V said.


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