Overcapacity in solar manufacturing to impact firms' profitability: ICRA

India's solar module capacity is set to reach 165 GW by March 2027, creating overcapacity that could pressure smaller players' margins, ICRA said in a new report

India's solar photovoltaic (PV) module manufacturing capacity is set to rise to over 165 gigawatts (GW) by March 2027 from around 109 GW at present, driven by strong policy support such as the approved list of models and manufacturers (ALMM), ratings agency ICRA said on Thursday.

 

What is driving India’s surge in solar manufacturing capacity?

 

The ALMM initiative has barred the direct import of modules, adding to the overcapacity alongside the imposition of basic customs duty on imported cells and modules and the production-linked incentive (PLI) scheme.

 

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) in India. This capacity is expected to increase to about 100 GW by December 2027 from 17.9 GW currently under ALMM.

 

Why is the solar sector facing an overcapacity challenge?

 

The industry is expected to experience overcapacity as annual solar capacity additions are projected at 45–50 GW, compared to an annual module production capacity of 60–65 GW. Additionally, recent US tariff measures have adversely affected export volumes, forcing modules originally intended for export to be redirected into the domestic market.

 

How will overcapacity affect smaller solar manufacturers?

 

“Hence, the overcapacity in module production is likely to result in a consolidation of the smaller or pure-play module players. However, vertically integrated manufacturers are anticipated to benefit over the long term due to greater control over the supply chain,” ICRA said in its report.

 

What role does China play in the global solar supply chain?

 

The global solar PV manufacturing supply chain continues to be dominated by China, which holds over 90 per cent of the global manufacturing capacity across polysilicon and wafer segments, more than 85 per cent in cells, and about 80 per cent in modules.

 

What are the key risks for India’s solar manufacturing ambitions?

 

Given India’s dependence on China for sourcing wafers and ingots, any potential geopolitical restrictions on the supply of technology or machinery required for setting up backward integration facilities for domestic OEMs over the medium term remain a key monitorable, ICRA noted.