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The U.S. solar industry has lately been facing tough times thanks to supply chain constraints and rising costs for developers. A new report by the Solar Energy Industries Association (SEIA) and Wood Mackenzie says that the U.S. market is expected to grow 25% less than previously forecast during 2022 due to a raft of headwinds. Indeed, costs related to utility-scale solar projects had declined by 12% between Q1 2019 and Q1 2021, but the recent spike in the price of materials has erased two years' worth of cost declines.
The industry is also facing opposition from within: in a decision known as NEM 3.0, California regulators have proposed significant changes to the state's solar incentive program, including reducing payments to solar customers for the excess power they generate--known as net-energy metering.
Further, no less than 100 ordinances have been adopted in 31 states blocking or restricting new solar, wind, and other renewable energy facilities, and at least 152 of these projects have been contested in 48 states.
"The U.S. solar market has never experienced this many opposing dynamics. On the one hand, supply chain constraints continue to escalate, putting gigawatts of projects at risk. On the other, the Build Back Better Act [and extension of the Investment Tax Credit] would be a major market stimulant for this industry, establishing long-term certainty of continued growth," Michelle Davis, principal analyst at Wood Mackenzie, has said.
The situation could not be more different in India, the world's third-largest carbon emitter after the U.S. and China. The Indian government is going out on a limb to develop the local solar sector, including cutting ties with its biggest solar equipment supplier–China. The Indian government is rolling out steep solar import duties and promising hundreds of millions of dollars in subsidies for companies that build factories at home.
And Indian entrepreneurs are taking up the rallying call.
Cutting ties with China
Until recently, India's renewable energy developers focused on building massive solar farms using cheap panels imported from China. But now, in an abrupt turn, the country's largest solar developer, ReNew Energy Global PLC (RNW.O), is planning to make the panels and components itself, part of an all-out campaign by India to break China's lock on the solar supply chain. The Goldman Sachs-backed company plans to have its first solar-panel factory in the state of Gujarat running by the end of next year and has also applied for $260 million in Indian government aid to expand into making the thin polysilicon wafers that go into those panels. ReNew's reasons are simple and straightforward:
"If we continue to just import solar modules from China, then we're trading one kind of energy dependence—on oil from the outside—to solar modules which are also coming from the outside," Sumant Sinha, ReNew's chairman and chief executive, has declared.
"We would like to control the supply chain," Manoj Upadhyay, CEO of Acme Solar Holdings Ltd (ACMO.BO) has declared. Acme is a big Indian solar developer that is proposing to invest in panel-making facilities.
Meanwhile, relations between India and China have deteriorated sharply following a border skirmish last year that left at least two dozen soldiers dead.
India is the third-largest buyer of China's solar module, with ~85% of its solar equipment imported from China. The majority of solar installations in the United States—roughly 80 percent—use imported panels, though most come from Malaysia (36%) and South Korea (21%), with China, Thailand, and Vietnam each contributing 8-9%
India plans to fight climate change with a massive increase in renewable energy. At last month's COP26 climate conference in Glasgow, Indian Prime Minister Narendra Modi pledged to eliminate net carbon emissions by 2070 and also said India will meet half its energy requirements with renewable energy by 2030. The country plans to more than triple solar capacity to 450 gigawatts over the next decade—equivalent to around 40% of what the entire world has installed now. But the country intends to do this mainly by creating its own domestic solar industry and avoiding becoming more dependent on a key regional rival.
Other Indian companies are opting for some M&A.
Back in October, India's giant conglomerate, Reliance Industries (NSE: RELIANCE),announced two deals to buy solar capacity. Reliance, through its subsidiary Reliance New Energy Solar Ltd (RNESL), is buying Norwegian-headquartered solar panel maker REC Solar Holdings for $771 million from China National Bluestar (Group) Co Ltd and an up to 40% stake in India's Sterling and Wilson Solar.
Owned by Asia's richest man, Mukesh Ambani, Reliance has announced plans to invest $10.1 billion in clean energy over three years. The refining giant plans to build solar capacity of at least 100 gigawatts (GW) by 2030, accounting for over a fifth of India's target of installing 450 GW by the end of this decade.
Meanwhile, foreign companies are taking the plunge into manufacturing in India due to hefty duties that will increase the cost of imported panels by 40%. A good case in point is U.S. manufacturer First Solar Inc. (NASDAQ:FSLR)—in July, the company announced plans for a $684 million, 3.3 gigawatt factory in Tamil Nadu, mainly funded by a loan from the U.S. International Development Finance Corporation.
"If we wanted to deal with India as a market, it would have been impossible with the duties," said First Solar CEO Mark Widmar. More than a dozen companies have applied for Indian government aid to build around 19 gigawatts of solar-panel capacity by 2023,
However, decoupling from China is easier said than done.
According to estimates by energy consulting firm Wood Mackenzie, China currently supplies as much as three-quarters of global solar manufacturing equipment, from the raw polysilicon to the ubiquitous black panels. China currently has around 240 gigawatts of solar-panel manufacturing capacity, nearly 10 times what India is forecast to have when its round of government-supported factory building is done.
Second, previous solar tariffs by India have been too low and short-lived to be effective. India's solar industry could face soaring costs, factories bleeding cash money, and solar developers running out of supplies if the government's ongoing push for solar independence fails.
Some detractors are already questioning how realistic India's quest for solar independence really is.
"The Chinese have been super aggressive in scale, technology development and pricing and it's really hard to compete with them. So why would you? You're fighting with, effectively, the Chinese government," Tim Buckley, who tracks energy finance in South Asia at the nonprofit Institute for Energy Economics and Financial Analysis, has posed.