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Mumbai: The new and renewable energy ministry’s recent proposal to implement ALMM List-II for solar PV cells is expected to have an impact on solar projects both in terms of timelines and costs and is estimated to result in an increase in electricity tariff by 40-50 paisa per unit, according to industry.

Pinaki Bhattacharyya, managing director and chief executive officer, AMPIN Energy Transition, a Delhi-based renewable energy project developer, said that this step might lead to retaliatory responses from other countries on the supplies of materials, technology and equipment to India.

“India needs to attain self-sufficiency in cells before imposing such non-tariff barriers… These barriers do not promote innovation, quality and cost improvement, which is a pre-requisite for a product to be internationally competitive. Hence, such barriers make India economically inefficient,” he told ETEnergyWorld.

The government of India recently announced that it plans to include solar cells under the ALMM from 1 April, 2026.

According to Vineet Bhatia, executive director, Grant Thornton Bharat, this might lead to a momentary supply shortage, diminishing the accelerated pace of solar capacity additions, when the country is trying to surpass 2030 renewable energy targets.

“Imposing such a non-tariff barrier on solar cells might increase the electricity tariff to the tune of 40-50 paisa per unit,” said Bhattacharyya.

He added that generally, for every 1 c/wp increase in module price, tariffs are expected to rise by about 7 paise per unit, leading to a projected increase of 40-50 paise per unit.

The ministry, in a written reply to an email sent by ETEnergyWorld seeking comments on the expected increase in tariffs due to the inclusion of solar cells in ALMM List-II, said that the MNRE had circulated a draft regarding ALMM for solar PV cells and had sought stakeholder comments thereupon till 21 Oct 2024.

It added that the comments received from the stakeholders were presently being examined and analysed in MNRE.

“The impact on electricity tariff or other short- and long-term implications of implementation of ALMM for solar PV cells would depend on the various factors and conditions prevailing at the time of implementation of ALMM for solar PV cells and since the date of implementation of ALMM for solar PV cells is not yet firmed up, any discussion on such issues would be mere speculation,” the ministry told ETEnergyWorld.

Bhattacharyya added that since electricity is an important input for carrying out most of the economic activities hence it would be detrimental to the GDP growth of India.

Grant Thornton’s Bhatia said that despite the substantial expansion of cell manufacturing capacity in India over the coming years, the reliance of Indian module manufacturers on imported cells is expected to grow over the next three to four years, reaching its peak around 2027-2028.

“This is primarily because cell manufacturing is significantly more complex, requiring extensive utility management. It involves higher exposure to various risks and demands three to four times greater investment compared to module production, making it the most intricate stage in the solar manufacturing value chain,” he said.

As per the provisions outlined in the ALMM Order dated 2 January 2019, all projects under the ALMM framework are required to source their solar PV modules from manufacturers and models listed in ALMM List-I. These modules must use solar PV cells from manufacturers and models included in ALMM List-II.

The solar cell manufacturing capacity in the country currently stands below 10 GW against the module manufacturing capacity of over 60 GW.

Vikram V, vice-president, co-group head – corporate ratings, ICRA, said that the proposal to include solar cells in ALMM, would be positive for domestic solar OEMs and support the demand for solar cells from these OEMs.

As of FY23, the country's module manufacturing capacity has surpassed 65 GW, positioning India as the world's third-largest solar module manufacturer, following China and Vietnam. India is set to expand its current cell manufacturing capacity, which stands at about 7 GW.

According to Ashish Agarwal, head of solar business at BluPine Energy, it is a welcome step, which will provide the industry with over a one-year window to prepare.

“Many companies are already expanding their solar cell manufacturing capacity in response, although there is a possibility that not all capacities will be fully operational by the set deadline i.e. April 2026. The domestic manufacturing industry is on the right path, but calibrated implementation is essential to ensure the industry can meet the demand,” he added.

On the kind of impact this step might entail on project costs, Agarwal said that it is expected to leave a notable impact on solar projects both in terms of timelines and costs.

“When modules were brought under the ALMM, we observed around a 20 per cent increase in pricing, primarily due to the shift in manufacturing locations. A similar price differential could arise when solar cells come under the ALMM mandate,” he said.

He, however, added that while the increased costs might pose short-term challenges for developers, this move is crucial for enhancing India's self-reliance in solar energy.

“In the long term, as domestic manufacturing scales up, costs should stabilise, and the industry will benefit from a more secure and resilient supply chain,” said Agarwal.

Naveen Khandelwal, CEO, BrightNight India, said that while these efforts would yield long-term benefits, they might have short-term impacts — both financially and on the growth rate of installed capacity.

Bhatia said that global solar module prices have dropped from $0.20/Wp in April 2023 to $0.10/Wp by July 2024. This sharp decline is largely due to an oversupply of upstream components.

“During the same period, domestic module prices in India also fell sharply, from $0.30/Wp to about $0.22/Wp, mainly due to the country's dependence on imported cells,” he said.

He, however, added that Indian solar module prices remain slightly higher than Chinese counterparts largely driven by factors such as India's 27.5 per cent import duty on solar cells.

This price gap can push the solar tariffs to Rs 3 per unit resulting in delays in PPA signing or discoms reevaluating the bids thereby impacting the capacity addition plan, added Bhatia.

The improvement in cost competitiveness of solar cells manufactured by domestic OEMs in relation to imports remains important to ensure that the capital cost for the solar power developers does not increase materially, owing to the ALMM requirement for solar cells, added ICRA’s Vikram.