Why in News?

• From June 1, 2026, the Union Government has mandated the use of domestically manufactured solar cells in all new net-metering and open access solar projects.
• The move aims to reduce dependence on imports, strengthen India's solar manufacturing ecosystem, and support the vision of Atmanirbhar Bharat in renewable energy.
• However, concerns have emerged regarding supply constraints, rising costs, and potential market consolidation.

What’s in Today’s Article?

• Understanding the Solar Manufacturing Value Chain
• Key Features of the New Mandate
• Concerns Raised by the Industry
• Supporter of the Policy
• Conclusion

Understanding the Solar Manufacturing Value Chain:

• Solar panel manufacturing involves multiple stages: Polysilicon → Ingots → Wafers → Solar Cells → Solar Modules (Panels).
• Solar cells convert sunlight into electricity. Multiple cells are assembled into solar modules/panels used for power generation.
• India possesses a large solar module manufacturing capacity (Installed - ~200 GW per annum) but has a much lower solar cell manufacturing capacity (~30 GW), making the industry heavily dependent on imported cells.

Key Features of the New Mandate:

• Projects covered: The domestic cell sourcing requirement applies to -
  • Net-metering projects: Primarily rooftop solar installations, and includes projects under PM Surya Ghar: Muft Bijli Yojana. Consumers can feed surplus electricity into the grid and offset power bills.
  • Open access projects: Renewable energy projects supplying power directly to commercial and industrial consumers.
• Government's position:
  • Industry sought an extension of the deadline for the mandated use of domestically manufactured solar cells.
  • However, the government clarified that there would be no blanket extension.
  • Limited relaxations may be granted for projects that have already made substantial progress, such as land acquisition, grid connectivity arrangements, and module installation.

Concerns Raised by the Industry:

• Supply constraints:
  • Domestic cell production remains significantly lower than module manufacturing capacity (cell capacity: ~30 GW vs module capacity: ~200 GW).
  • This mismatch could create shortages of domestically manufactured cells.
• Challenges for non-integrated manufacturers:
  • Many module manufacturers do not produce their own cells and depend on external suppliers.
  • These firms may now face procurement difficulties, becoming dependent on large integrated competitors that manufacture both cells and modules, and operating at a competitive disadvantage.
• Market consolidation risks:
  • Industry experts fear that integrated players may prioritize selling cells due to higher profit margins.
  • Smaller manufacturers could struggle to survive. The sector may witness consolidation, reducing competition.
• Cost escalation:
  • According to industry representatives, domestic cell manufacturers currently enjoy margins of around 20–30% due to limited competition.
  • Modules made using domestic cells are substantially costlier than those using imported cells.
  • Rising costs could affect project economics and deployment rates.
• Impact on employment and ancillary industries:
  • Industry bodies warn that more than 125 module manufacturers and 500 ancillary industries could face financial stress.
  • Smaller players may find compliance difficult unless domestic cell capacity expands significantly.
• Additional sectoral pressures:
  • The transition comes at a challenging time for the solar industry -
    • Module manufacturing capacity (effective/ current output) is estimated at 60–65 GW annually.
    • Solar installations are projected at around 45 GW in 2025–26.
    • Several manufacturers are operating at only 30–40% capacity utilisation.
    • Export opportunities have weakened due to high tariff barriers in the United States.
  • These factors have intensified concerns regarding oversupply and profitability.

Supporters of the Policy:

• Strengthening domestic manufacturing: Supporters argue that the mandate provides long-term certainty and encourages investment in domestic manufacturing.
  • According to industry assessments, India's solar cell manufacturing capacity could reach nearly 100 GW by 2027.
  • This would reduce import dependence, particularly on Chinese solar supply chains, and helps in achieving India's climate commitments.
• Adequate capacity outlook: Industry proponents contend that fears of shortages are exaggerated because large utility-scale projects bid before August 31, 2025 are exempt from the cell sourcing requirement.
• Push towards backward integration:
  • The policy is expected to encourage module manufacturers to invest in cell manufacturing, and greater vertical integration across the solar value chain.
  • It will help in the development of a stronger indigenous renewable energy ecosystem, aligning with Atmanirbhar Bharat, Make in India, and energy security objectives.

Conclusion:

• The policy reflects a strategic shift from merely deploying solar capacity to building a complete domestic manufacturing ecosystem.
• The success of the policy will depend on how quickly domestic cell manufacturing scales up and whether policymakers can balance industrial development with maintaining a competitive and diverse solar market.