Overcapacity in solar module manufacturing to moderate profitability
MUMBAI: The solar photovoltaic (PV) module manufacturing capacity is set to top 165 gw by March 2027 from 109 gw now, buoyed by the slew of incentives and policy measures in the form of the approved list of models and manufacturers (ALMM) that effectively bars direct import of modules, along with the imposition of basic customs duty on imported cells and modules, and the production-linked incentive (PLI) scheme, leading to an overcapacity build-up which may force industry-wide consolidation.
The implementation of ALMM list-II for solar PV cells from June 2026 has spurred the ongoing expansion of cell manufacturing capacity by module original equipment manufacturers (OEMs), which is likely to increase to about 100 gw by December 2027 from 17.9 gw currently under ALMM, Icra Ratings said in a report.
But this is likely to lead a overcapacity scenario as the annual solar capacity installation is expected at 45-50 gw direct current against an annual solar module production of 60-65 gw. Further, the recent imposition of US tariffs has adversely impacted export volumes, posing new challenges for the industry as modules have been redirected from the export market to the domestic market.
Thus, the overcapacity is likely to result in a consolidation of the smaller/pureplay module players, said the report based on the seven top players which contribute 50 percent of the volume. The report however did not name these seven companies.
According to Ankit Jain, a vice-president at the agency, the operating profitability for of the top seven solar OEMs, which remained elevated at 25% in FY25, is likely to moderate due to competitive pressures and overcapacity build-up. The recent imposition of tariffs by US and the growing regulatory uncertainty in the US are likely to further dampen exports, potentially exerting pricing pressures.
Given that the ALMM requirement for solar cells is effective from next June, a significant scale-up in the cell manufacturing capacity along with its stabilisation in a timely manner remains critical in the near-term. Further, the cost of modules using domestic cells is expected to be higher by 3-4 cents/watt compared to the cost of the domestic modules using imported cells.
The agency also notes that all projects wherein the last date of bid submission is prior to September 2025, translating into a solar project pipeline of 45-50 gw, will be exempted from the requirement of using solar PV cells under ALMM list-II even if their date of commissioning is after June 2026. This will support the order book without additional capacity ramp up in the near term.
The solar PV manufacturing supply chain is dominated by China, with over 90 percent share in the global manufacturing capacity across polysilicon and wafer, over 85 percent share in cells and around 80 percent share in modules. Given the dependence on China for the sourcing of wafers and ingots, any potential geopolitical curbs on the supply of technology/machinery in setting up backward integration facilities for domestic OEMs remains a key monitorable. Moreover, each successive stage in the value chain demands higher technological complexity, which not only requires substantial capital investment but also heightens the risks associated with project stabilisation and implementation.