ICRA Analysis: Reinstated ALMM Order’s Impact on Solar Energy Sector and Perspectives for OEMs and IPPs

In a statement released today, ICRA Limited shares its views on the ALMM order issued by the Ministry of New & Renewable Energy (MNRE) on February 9, 2024. According to Mr. Girishkumar Kadam, Senior Vice President & Group Head – Corporate Ratings at ICRA Limited, the reinstatement of the ALMM order presents significant implications for the solar energy sector.

“The reimposition of ALMM from April 1, 2024, requiring solar projects awarded by central nodal agencies and state distribution utilities to source modules from solar module manufacturers listed under this order which currently comprises only domestic solar OEMs, is a positive for these OEMs. This order was earlier put under abeyance for FY2024. The scale-up in domestic module manufacturing capacity over the past 12 months is expected to improve the availability of modules from domestic OEMs. However, the sector would remain dependent on imports for sourcing solar PV cells and wafers, given the limited cell manufacturing capacity and lack of wafer capacity in India. In this context, setting up fully integrated units awarded under the production-linked incentive (PLI) remains important to reduce dependence on imports.

From the IPP’s perspective, the earlier order exempted projects commissioning till March 31, 2024, from the ALMM requirement. The Government has now relaxed this provision to a certain extent and has allowed exemption from ALMM for projects, which are in advanced stages of construction and wherein the order for modules (including the opening of letter of credit) is placed before March 31, 2024. This provides relief for IPPs with advanced progress in development and with expected commissioning post-March 31, 2024. Also, the order allows exemption from ALMM for open access-based and captive solar projects, enabling these projects to source modules from the most cost-competitive sources. Based on the prevailing cost of imported solar PV cells and modules, the sourcing of imported modules is relatively cheaper than the cost of sourcing modules from domestic OEMs after accounting for the import duties.”

These insights from ICRA offer a deeper understanding of the implications of the reinstated ALMM order on the solar energy sector, shedding light on the perspectives of both domestic solar OEMs and independent power producers (IPPs).