PV policy frameworks and market outlook in India

In 2023, the Indian government released the National Electricity Plan (NEP) for 2022-2032, projecting that the cumulative installed capacity of renewable energy will reach 337 GW by 2026-2027, with PV accounting for over 50% at 186 GW. According to the installation data from the Ministry of New and Renewable Energy (MNRE), India had cumulated 73.3 GW of installed PV capacity by the end of 2023. This means the country must add over 110 GW in the next three to four years to achieve its ambitious goal, but how?
 

Policy incentives

CPSU Scheme Phase-II

Initiated in 2019, the Central Public Sector Undertaking (CPSU) Scheme Phase-II aims to add 12 GW of PV installations, with the MNRE providing 85.8 billion rupees ($1.03 billion) in Viability Gap Funding (VGF) to be allocated to "government producers," defined in the Scheme as entities under the jurisdiction of the central or state governments, with government funding of over 51%. This funding is for ground-mounted power plant construction generating electricity for government agencies or transmitted to distribution companies (discoms) across the country.

The distribution of VGF considers the installed capacity and costs of each tender, with an open bidding process. Additionally, the MNRE regularly assesses market prices and adjusts the cap of each allocation, which has been 5.5 million rupees/MW ($66,000/MW) since 2021.
 

Development of Solar Parks and Ultra Mega Solar Power Projects

This policy, implemented in 2014 for utility-scale centralized generation projects, aims to add 40 GW of PV installations by 2025 to 2026, with the government-owned Solar Energy Corporation of India (SECI) taking charge. State governments have the authority to allocate project land and choose an entity as the park developer responsible for construction. Each project is eligible for Central Financial Assistance (CFA) of either 2 million rupees/MW ($24,000/MW) or 30% of the total cost, whichever is lower.

Subsidies for various park developers:

By the end of November 2023, India approved the construction of 50 solar parks, issuing 37.5 GW of tenders, with 10.4 GW commissioned. As a cornerstone for ground-mounted generation projects, this policy provides long-term support for demand in India.

Notably, this policy can apply along with the CPSU Scheme. Therefore, a “government producer” meeting one of the above requirements and establishing projects in a solar park will be eligible for both VGF and CFA under this policy.
 

Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan Yojana (PM-KUSUM)

Launched in 2019, with a total budget of 344.2 billion rupees ($4.13 billion), the PM-KUSUM aims to ensure electricity for agricultural land with solar energy, adding 34.8 GW of installed PV capacity by 2026. There are three components of the program: A, B, and C.

Component A aim to add 10 GW of installed PV capacity. Any landholders, including farmers, cooperatives, village committees, etc., can commission developers or discoms to build solar power plants on agricultural land, with an output limit of 500 kW-2 MW per plant, and the generated electricity will be purchased by discoms.

Components B and C subsidize 24.8 GW of solar PV irrigation pump installations on agricultural land. Component B aims to add 1.4 million off-grid solar PV pumps, while Component C involves converting 3.5 million grid-connected pumps into solar PV ones. This conversion includes Individual Pump Solarization (IPS), where modules are installed on individual pumps, and Feeder Level Solarization (FLS), which involves converting the main power supply lines to solar PV. The subsidy varies depending on the region and the application technology.

Though the PM-KUSUM benefits end-user demand, its implementation has not been ideal. As of November 2023, Component A only encouraged 141 MW of installations, while the combined solar PV pump installation under Component B and C was less than 300,000 units. Why? On top of the difficulty in acquiring land and bureaucratic delays, most Indian farmers find it overwhelming to afford the high costs of PV installation despite subsidies. The 34.8 GW target will be out of reach unless the government addresses these problems soon.
 

PM-Surya Ghar Muft Bijli Yojana

Originally the second phase of the Grid Connected Rooftop Solar Programme (RTS) launched in 2019, the PM-Surya Ghar Muft Bijli Yojana scheme aims for an accumulative installed distributed PV capacity of 40 GW by 2026. However, it had only achieved 11 GW by the end of 2023. Stronger policies are imperative to boost demand.

In February 2024, the government renamed the RTS as PM-Surya Ghar Muft Bijli Yojana and pledged an investment of 750 billion rupees to subsidize rooftop PV projects, providing 300 kWh of free electricity to ten million households. The latest subsidy regulations are as follows:

The program inherited and raised the RTS’ subsidy for each household. However, future consistency with the RTS is subject to change as the MNRE has yet to announce a complete version of the PM-Surya Ghar Muft Bijli Yojana. For instance, whether the program will continue funding 20-40% of the installation cost for discoms and providing bonuses for exceeding installation targets or introducing entirely new incentive measures requires further observation.
 

Capacity incentive policies

Approved List of Models and Manufacturers (ALMM)

India has implemented the ALMM since 2019 to ensure the performance of PV products. According to the list updated in January 2024, the country’s nominal production capacity is approximately 22,191 MW. The government announced that all government-involved PV projects must use modules from the list. However, there was a one-year grace period starting March 31, 2023, as capacity fell short of demand.

With the grace period ending in the second quarter of this year, the industry is concerned about the exemption or not of ongoing projects. Hence, the MNRE announced on February 9 that projects “already placed module orders” and are at the “advanced stage of construction” before March 31 will qualify for the exemption. However, the announcement was soon revoked on February 15 due to the ambiguity in the definition of “advanced stage.” In the short term, The market still awaits further updates on concrete measures and complete provisions.
 

Basic Customs Duty (BCD)

India has imposed 25% and 40% BCD on cells and modules, respectively since 2022. However, module prices in China plunged after 2023, weakening the BCD’s impact on market demand.
 

Production Linked Incentive Scheme (PLI)

The Union Cabinet approved the PLI scheme in 2021 to strengthen the local PV supply chain and establish vertical integration through two tenders with 240 billion rupees ($ 2.88 billion) of total worth. According to the scheme, manufacturers establishing vertically integrated capacity from the polysilicon to the module sector can obtain a bidding quota of 10 GW, and those with wafer-module or cell-module capacity get 6 GW. PLI will subsidize 50% of the bidding capacity and calculate the final amount of subsidy based on annual sales, localization progress, module conversion efficiency, etc.

As of the end of 2022, the PLI allocated 48,337 MW of module capacity. The scheme stipulates that cell-module capacity must be commissioned within 1.5 years after contract awarding. For other vertical integrated capacities, the limit is three years. Therefore, all bid-winning projects will be commissioned by 2026.
 

Market outlook

Despite project delays due to administrative procedures, India is increasing investment and streamlining processes. With improved policies, existing demographic dividends, and economic momentum, India’s long-term demand is expected to rise continuously.

While module production expansions accelerate under the PLI, India still has to rely on Chinese cell imports in the short term, for the higher a sector is in the PV supply chain, the longer its production cycle will be. Additionally, technological requirements for production expansions of upstream sectors underscore India’s lack of experience compared with China, which may affect the commissioning process and actual production output. Therefore, downstream sectors have clearer expansion plans than those in the upstream.

For India, the key lies in the punctual commissioning of local capacity to meet the huge demand boosted by incentive policies.