Key Takeaways from the Renewable Energy India Expo 2024

Last week, we had the opportunity to attend the Renewable Energy India Expo in Delhi, where we engaged with prominent companies in the renewable sector, including Waaree, Vikram, Jupiter, Insolation Energy, Rayzon, Navitas, and Premier, among others. Our discussions with industry leaders centered around key challenges and opportunities in the renewable energy landscape, particularly in the solar module manufacturing space. Here’s a recap of some important questions we explored and the insights we gathered from these conversations.

1. Is Overcapacity in Solar Module Manufacturing a Concern?

With the rapid entry of both large and small players into the solar module manufacturing market, we wanted to understand the demand-supply scenario over the next three years.

Answer:
Despite the significant increase in capacity, there’s little concern about oversupply. In fact, industry players believe that even after 3-4 years, the demand-supply gap will persist. Currently, the rated capacity of the industry stands at 49GW, which is expected to grow to 92-95GW by FY28. However, it’s important to differentiate between rated capacity (the peak theoretical output), throughput capacity (the maximum practical output), and actual utilization (the real output). A rated capacity of 100GW, for example, results in a utilized output of about 50-60GW, which, with a 25% plant load factor (PLF), translates to an annual power output of only 15-18GW. Given India’s increasing energy needs, particularly in renewable energy, the country will require 120-150GW of new installations annually by FY30, leaving room for continued demand growth.

2. Will the Industry Collapse Without Government Support?

A pressing concern is the sustainability of the renewable energy sector if the government withdraws critical support measures such as Basic Customs Duty (BCD), Anti-dumping Duty (ADD), and the Approved List of Module Manufacturers (ALMM).

Answer:
Most industry experts agree that government support is crucial for the sector’s growth, and they believe that measures like ALMM will remain in place for at least the next 4-5 years. The government is also considering the addition of Anti-dumping Duty and is in the process of finalizing an Approved List of Cell Manufacturers (ALCM) to complement the ALMM. This regulatory backing is vital to help companies scale rapidly, especially in areas like cell manufacturing. Over the next five years, we expect significant advances in the renewable sector, with greater focus on domestic cell manufacturing as the backbone of module production.

3. Which Companies Will Survive in the Long Term?

Given that module manufacturing is largely considered a commodity play, we explored which companies are likely to succeed over the next few years.

Answer:
The key to long-term survival lies in backward integration, particularly into cell manufacturing, where most of the value addition occurs. Companies that invest in cell manufacturing will have a significant edge, as operating margins for module manufacturers, which are currently high at 14-15%, are expected to stabilize at around 10-12%. In contrast, cell manufacturers are enjoying exceptionally high margins of 60-65%, which are likely to settle around 30-35% over time. The takeaway here is that companies serious about building out cell production capabilities will be best positioned to thrive in the future.

4. How Easy Is It to Set Up a Cell Manufacturing Facility?

Given the importance of cell manufacturing for the industry, we were keen to understand how challenging it is to establish a facility.

Answer:
Setting up a cell manufacturing facility is significantly more complex and capital-intensive than setting up a module line. A 1GW cell line requires a capital expenditure (capex) of INR 600-700 crore, compared to INR 100 crore for a 1GW module line. The process of cell manufacturing is highly sophisticated, and achieving optimal efficiency in the final product demands considerable technical expertise and effort. Currently, the industry’s capacity stands at 10GW, and this is expected to grow to 50GW by FY28. The ALCM, which is likely to be active by FY26, will push manufacturers to ramp up their capacities, and given the availability of funds, this aggressive expansion is feasible. However, only a handful of companies are expected to succeed due to the complexity of the process.

5. Government Concerns Regarding Windfall Gains in the Industry

In August, former Minister of New and Renewable Energy R.K. Singh made strong comments about ALMM and how it had led to excessive profiteering by Indian manufacturers. He noted that module prices were much higher than they should be, considering the cost of production.

Answer:
Contrary to the minister’s statement, module manufacturers are not charging 23-24 cents, as claimed. Instead, the actual range is 14-16 cents. The suggestion that companies like NTPC should set up their own facilities if they believe the margins are excessive is a practical one, but the industry stresses that reasonable margins are essential for quick payback on investments. With India’s renewable energy targets being ambitious, module manufacturers need a supportive environment to scale up production and ensure the industry continues to thrive.

In conclusion, the Renewable Energy India Expo provided us with valuable insights into the solar manufacturing sector and its challenges. While overcapacity is not a concern in the short term, government support remains essential for the sector’s continued growth. Backward integration into cell manufacturing is critical for companies looking to survive and succeed in the long run. As India moves forward with its renewable energy goals, the industry will need to balance the need for profitability with the push for rapid expansion, ensuring a sustainable and competitive market.