Future Bright For Domestic Solar Manufacturers In India

• CRISIL sees Indian solar module manufacturers in a good place with the impending ALMM implementation
• Domestic demand will become stronger once ALMM is in force, boosting operating margins
• Strong export demand, especially from the US, is another positive for Indian manufacturers

With the Indian Ministry of New and Renewable Energy (MNRE) bringing the Approved List of Models and Manufacturers (ALMM) into force from April 1, 2024, and the strong demand for domestic solar modules, Indian manufacturers can look forward to profitable times ahead.

According to S&P Global subsidiary CRISIL, Indian manufacturers will be able to keep their operating margins strong at 12% to 14% in fiscal year (FY) 2024-25, almost at the same level as the current FY once ALMM comes into force. That's when the domestic demand will become stronger.

Here's a quick background to ALMM: All government or government-supported solar projects or those that have the government as the offtaker are required to use solar cells and modules listed in the ALMM. It covers only domestically produced solar products. In the absence of enough domestic capacity and rising demand, the ministry has deferred its implementation till March 31, 2024 (see India Provides Relief From ALMM Obligation).

Currently, as Indian companies face an 'onslaught of cheaper imports,' they can pin their hopes on strong export demand, especially from the US, to more than offset the surge in imports in the absence of ALMM.

"In fact, India's module exports are seen tripling to 8-9 GW this fiscal," said CRISIL Ratings Director Ankit Hakhu. "Markets abroad will stay good for Indian manufacturers next fiscal, too, as the US will continue to face a supply deficit due to its increasing demand and continuing restrictions on Chinese supply."

Indian solar manufacturers can hope for almost double profitability in FY 2024-25 over the previous fiscal thanks to the rising share of exports that will fetch them a 15% to 20% premium over domestic prices, as per their analysis.

Additionally, the return of ALMM will also firm up domestic module prices that have fallen by over 50% this fiscal due to competition from imports.

"Moreover, demand growth will increase utilization rates, as 70-75% of domestic demand (26-28 GW) will be met by Indian module producers next fiscal, up from 30-35% this fiscal," added CRISIL Ratings' Associate Director Ankush Tyagi. "These factors will help offset the pressure on profitability due to the decline in the share of exports for domestic module manufacturers (to 35-40% in fiscal 2025 from 50% in fiscal 2024)."

These factors are likely to help Indian solar PV producers expand capacity and invest in technology upgrades.

CRISIL does add a disclaimer though, saying any of these estimates will change with any change in US policy towards imports from China and any further extension in ALMM implementation.

Earlier, CRISIL forecast 16 GW of new solar PV capacity addition in FY 2023-24 for India due to a decline in solar module prices (see Falling Solar Module Prices Boost Indian Installations).