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The Sun Temple in northwest India’s Modhera village is a UNESCO World Heritage site where worshippers pay homage to a solar deity. It’s nearly a thousand years old but, for the first time, this temple to the sun is being powered entirely by sunlight, thanks to the village’s new solar plant. The transformation has made international headlines, sending a clear message about India’s solar ambitions. 

But it’s not without costs. In neighbouring areas such as Sujanpura, residents are complaining[1] about the loss of their grazing land to the development of solar projects that have primarily benefitted Modhera. The discontent in Sujanpura is just one example of hiccups that are casting a shadow on the numerous solar projects radiating across the country. 

India’s ambitious solar quest is running into twists and turns, with challenges ranging from land disputes to domestic manufacturing constraints. However, Fidelity International’s equity portfolio manager Amit Goel thinks the country will overcome the short-term hurdles and eventually find its place in the sun as a solar giant.

“We are talking about the fastest-growing major economy with an acute hunger for renewable energy, and the Indian solar industry has the blessing of nature,” said Goel. “I see plenty of investment opportunities along the country’s solar value chain.”

Rich in sunshine

India’s nominal gross domestic product is widely forecast to grow at more than 6 per cent annually for years to come. Boasting about 300 sunny days a year, the country has enough potential solar power to exceed its overall electricity demand. In November 2021, Prime Minister Narendra Modi revealed a target of 500 gigawatts in renewable capacity by 2030, including 280 gigawatts of solar, which would place the country’s generation second only to China. But two years on, land disputes and an over-reliance on Chinese products are making it increasingly difficult for India to meet its 2030 goal. 

Nationwide solar capacity drastically undershot a target of 100 gigawatts by 2022, with only 72 gigawatts in place by November 2023. While some 60 gigawatts of projects are under construction, many large solar parks are experiencing delays. At least a dozen projects overseen by the government-owned Solar Energy Corporation of India are facing disputes. A 2-gigawatt project in south India’s Tamil Nadu state is being disrupted by litigation, while three solar parks with a total capacity of 1.3 gigawatts in northwest India’s Jaisalmer province are suffering from delays as a result of conservation concerns for the Great Indian Bustard, a native bird species. 

Chinese products

The matter is also being complicated by the country’s desire to create a self-sufficient solar industry and to shake off reliance on Chinese manufacturing. The Indian government has imposed tough restrictions on imports to discourage the use of Chinese solar products, which dominate global markets. China accounts for some four fifths of the world’s solar manufacturing capacity and about two thirds of solar product exports. India has imposed a 40 per cent import duty on solar panels and a 25 per cent duty on solar cells, which the government hopes are punitive enough to incentivise local manufacture. To some degree this is working but it will take many years before Indian businesses can make up the shortfall from China.  

Power demand occasionally exceeded the country’s maximum electricity supply in recent months. India currently depends on imports for nearly all its crude oil, as well as about half of its gas needs. By comparison, China’s crude oil imports are below 80 per cent and gas imports are below 40 per cent.  

“Energy security is increasingly high on the Indian government’s priority list,” Goel said. “Developing a big solar sector could help reduce the country’s energy import dependency.”

While the government aims for about 30 gigawatts of new capacity annually based on its 2030 solar target, Goel thinks it would be more realistic to settle with 15 to 20 gigawatts a year. Hitting 200 gigawatts by 2030 seems a more likely scenario. 

The government has shown a willingness to be flexible with its short-term policy measures to accommodate delays. It has extended the deadline for implementing the Approved List of Modules and Manufacturers, which currently contains only Indian manufacturers, by one year to March 2024. Lists like these are intended to reduce or even bar the use of solar modules made by foreign companies. India is also considering cutting import duties for solar panels[2].

The government’s flexibility adds to optimism that India will be able to overcome the near-term obstacles in its solar journey, according to Fidelity’s utilities analyst Yatin Matta. 

“None of the challenges so far looks big enough to stop India from eventually supersizing its solar industry,” said Matta, “A renewable-energy boom led by utilities companies may get delayed but won’t be stopped.”

Growth opportunities

Both Goel and Matta see growth opportunities along India’s solar value chain, including power generation, transmission and distribution, module manufacturing, engineering and construction, power storage, and renewable-energy financing. Among generators, several large companies are expected to sustain double-digit growth in their solar capacity for years to come, although there are signs that some expanded too aggressively at the cost of profit margins.

Transmission is another segment where demand should be strong, especially for states like Rajasthan and Gujarat where abundant solar power is expected to be directed through inter-state grids into other parts of India. 

India’s power distribution reform, aimed at cutting inefficient subsidies in favour of the market mechanism, is being delayed due to its political sensitivity. But once the reform comes through, perhaps after 2024’s national elections, large distribution companies stand to benefit.

Indian manufacturers of modules, cells and wafers have not been able to compete head-to-head with top Chinese producers, but they are evolving quickly and approaching a critical mass. 

Given time, the Indian solar industry should grow big enough to light up not just the Sun Temple village, but also its neighbouring regions and much of this vast nation.

  [1] According to media reports and court documents

  [2] Singh S. C., Ohri N. (2023, May 31). India considers cutting solar panel import tax to make up domestic shortfall. Reuters.

Yi Hu

Yi Hu

Investment Writer