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Strong Demand Outlook for Domestic Solar OEMs Aided by Policy Measures: ICRA

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Business prospects of domestic solar original equipment manufacturers (OEMs) will remain strong aided by several policy measures over medium-term, rating agency ICRA said.

As a result, many 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.

However, it stated that timely commissioning and ramping up of ongoing capex in module manufacturing value chain remains a critical factor in the near to medium-term.

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

“The policy focus by Government of India 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,” GirishKumar Kadam, Senoir Vice President & Co-Group Head, Corporate Rating ICRA, said.

In this context, capacity addition in solar energy segment within the RE space is expected to remain significant with about 65-70 per cent share by FY 2030, given the relatively lower execution challenges in solar segment, he added.

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Further, the government has a solid policy focus to encourage domestic manufacturing of photovoltaic (PV) modules through various policy measures announced in last 2-3 years.

Measures such as notification of approved list of module manufacturers (ALMM) from April 2021, imposition of basic customs duty (BCD) on imported cells & modules from April 2022, award of manufacturing linked power purchase agreements for aggregate capacity of 12 GW, implementation of production linked incentive (PLI) scheme, among others are positives in this direction, he said.

Further, ALMM list has only domestic solar OEMs and there remains an uncertainty for inclusion of foreign solar OEMs as of now, he added.

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 4,500 crore earlier, ICRA said.

This is expected to support the setting up of additional cell & module manufacturing capacity of up to 40 GW, it stated.

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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.

The PV module price environment has however remained elevated over the last 10-12 months, with the demand-supply imbalances in polysilicon as well as supply chain disruptions in China, it added.

Given that the import dependency for 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, ICRA stated.

Vikram V, Vice President & Sector Head Corporate Ratings, ICRA, said, “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 per cent post April 2022, assuming the applicable BCD on imported cells/modules.”

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However, he said 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 critical factors, he stated.

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