Building The Solar System: SBICAPS Report On Funding Revolutions In India’s Solar Growth

The recent report titled “Building the Solar System: Revolutions in the Funding Space” by SBICAPS highlights the rapid growth of solar energy in India and its increasing importance in meeting the country’s future energy demands. The report outlines several key factors driving this growth, along with the challenges that need to be addressed to sustain it.

India’s electricity consumption has been on the rise, exceeding estimates in the financial year 2024. During this period, about 32 gigawatts of new capacity were added, with solar energy leading the way by contributing a record 15 gigawatts. However, to meet the ambitious target of around 293 gigawatts by 2030, the current rate of solar capacity additions needs to double. This growth is supported by various government initiatives and favorable tendering trends, suggesting that between 50 to 60 gigawatts of new solar capacity will be added over the next two years.

The report emphasizes that while utility-scale solar installations have been the primary contributors to capacity growth, new sources like commercial and industrial (C&I) projects and rooftop solar systems are becoming increasingly important. These segments currently make up about 30% of the total solar capacity in India. The report forecasts that around 4 gigawatts per year will be added in each of these segments over the next few years. The C&I segment, in particular, is expected to grow significantly as companies form group captive arrangements to benefit from tariff waivers. This allows them to secure reliable and cost-effective power compared to the rates charged by state distribution companies.

Despite the strong demand and growth prospects, the report identifies several challenges on the supply side that could hinder the achievement of these ambitious targets. One of the primary constraints is the lack of sufficient domestic manufacturing capacity for key components. Currently, India’s nameplate capacity for solar modules is around 72 gigawatts, but there are no polysilicon production facilities, and the cell and wafer manufacturing capacity is limited. This shortfall is due to a combination of factors, including a scarcity of raw materials, high capital investment requirements, long gestation periods, and rapid technological advancements. As a result, India remains heavily reliant on imports, particularly from China, for both cells and modules. This dependence poses a risk to India’s energy security goals, especially given the geopolitical sensitivities associated with Chinese imports.

To address these challenges, the government has introduced several incentives to encourage the development of upstream solar manufacturing capacities. Two Production-Linked Incentive (PLI) schemes have been launched, each with multiple sub-schemes targeting different levels of integration in the solar manufacturing value chain. In addition to these incentives, the government has imposed a Basic Customs Duty (BCD) of 40% on imported modules and 25% on imported cells to discourage cheap imports and promote the use of domestically produced components. Projects that wish to qualify for government incentives must also use modules from the Approved List of Models and Manufacturers (ALMM), which only includes domestic producers. These measures are expected to significantly increase upstream capacities, particularly in the cell and wafer manufacturing stages.

The report also highlights the substantial funding requirements needed to achieve the targeted solar capacity additions. Over the next two years, the addition of solar projects alone is expected to require an investment of around 2 trillion rupees. Beyond this, an additional 1.2 trillion rupees will be needed to establish the complete value chain, from polysilicon production to module assembly. Financing these projects will require a diverse range of funding sources, including long-term debt, working capital, and non-fund-based facilities. Banks and financial institutions will play a critical role in providing the necessary credit, with banks dominating the provision of working capital and non-fund-based facilities across the value chain, while financial institutions are more involved in rupee-denominated term loans.

In conclusion, the report paints a picture of a rapidly growing solar sector in India that is poised to play a critical role in the country’s energy future. While there are significant challenges to be addressed, particularly in terms of building domestic manufacturing capacity and securing the necessary funding, the growth opportunities are immense. With strong government support and a favorable regulatory environment, India’s solar sector is well-positioned to achieve its ambitious targets and contribute significantly to the country’s energy security and climate goals.