India’s Power Sector Shifts Amid Rising Demand, Solar Boom, Manufacturing Challenges: SBI CAPS

India's power sector is transforming due to rising electricity demand, rapid solar expansion, and evolving regulatory and geopolitical dynamics. according to a recent SBI CAPS report titled, “Will Tariff Wars Prompt a Modular Approach?”

As per the report, India is set to witness a surge in cooling-related electricity demand, which could further intensify peak summer power consumption. Rising air conditioning (AC) penetration, currently below 10 percent but expected to grow significantly, will drive electricity demand higher—similar to China’s experience, where cooling-related consumption grew at a 13 percent CAGR for nearly two decades.

Further, nations's solar sector is expanding rapidly, with solar capacity additions projected to double to nearly 30 GW in FY25. This momentum is expected to continue, with 85-90 GW of new installations projected for FY26-FY27, driven largely by residential rooftop solar adoption. Annual solar module demand could reach 100 GW, contingent on factors such as improved PPA and PSA execution, successful implementation of the PM-Surya Ghar: Muft Bijli Yojana (PM-SGMBY), and stronger Renewable Purchase Obligation (RPO) compliance. However, challenges such as land acquisition hurdles, ALMM restrictions, and net metering policies at the state level could pose risks.

India’s solar module manufacturing ecosystem is expected to mature by FY27, with nearly 90 GW of ALMM-compliant module demand likely to be met domestically, up from 70 GW today. The total nameplate module manufacturing capacity, currently around 90-100 GW, is projected to rise to 150-160 GW by FY27, with an effective operational capacity of 90-100 GW. However, solar cell production remains a bottleneck, as India’s cell-to-module integration ratio is only 32 percent, though it is expected to improve to 65 percent. Even if all proposed manufacturing projects are completed, over half of India’s solar cell requirements will still need to be imported by FY27.

The government is pushing for deeper integration by prioritizing wafer and ingot manufacturing, with plans to allocate USD 1 billion in incentives. DCR module prices are expected to remain high due to strong demand from PM-SGMBY and stricter regulatory mandates.

Non-DCR module manufacturers are primarily targeting two markets. The ALMM-compliant domestic segment, which focuses on utility-scale projects, faces intense competition and compressed margins due to low entry barriers. Success in this segment requires economies of scale, cost-effective procurement of Chinese solar cells, and a well-diversified module portfolio. The US export market remains lucrative due to significant price premiums but presents higher barriers, including long supply cycles (18-24 months), working capital constraints, currency risks, and strict US quality compliance. Sustainability in exports depends on trade policies, as Chinese modules are significantly cheaper. Countervailing Duties (CVD), Anti-Dumping Duties (ADD), and the Uyghur Forced Labor Prevention Act (ULFP) are critical in maintaining competitiveness.

Geopolitical uncertainties present varied risks across the solar industry. A shift in US policy away from green energy could weaken demand, causing global supply-demand imbalances and eroding Indian export margins. The potential withdrawal of the Inflation Reduction Act (IRA) poses dual risks—lower margins for Indian exporters and financial losses on overseas projects. However, reduced US incentives could also slow down American solar manufacturing, indirectly benefiting Indian exporters.

India is also looking to diversify its export markets, with the European adoption of ULFP regulations creating potential opportunities. However, increased non-tariff trade barriers, such as US restrictions on Xinjiang-sourced polysilicon and global tariff fluctuations, continue to impact solar trade flows. While India remains dependent on China and Southeast Asia for solar cell imports, its module exports are largely directed toward the US.

Profit margins in India’s solar sector vary across segments. The DCR segment commands high margins due to supply shortages, while the non-DCR market is dominated by ALMM-compliant modules. US exports remain lucrative due to premium pricing. Leading solar manufacturers are adopting different strategies—Waaree Energies is enhancing vertical integration, ANIL is leveraging its full cell-to-module production capabilities to cater to high-margin DCR markets, and Premier Energies remains a key player in the DCR space.

Overseas expansion plans have faced setbacks due to global uncertainties. While Vikram Solar, Navitas Solar, and Saatvik Solar have delayed their international ventures, Waaree Energies has successfully operationalised a 1.6 GW module facility abroad.

As India’s solar manufacturing industry expands rapidly, companies that scale operations and integrate across the value chain will emerge as long-term winners. While integrated players are well-positioned to tap into high-margin DCR markets, non-integrated module makers must rely on utility-scale volumes and exports. As the sector navigates global policy shifts, maintaining cost competitiveness and balancing domestic demand with strategic exports will be crucial for sustaining growth.