Recent success of Waaree Energies IPO highlights not only investor’s confidence in the company but also India’s solar sector. India’s solar sector is witnessing bright prospects with government support for the transition and decreasing costs of solar panel production, making it feasible for the general consumer. The Indian government is increasingly relying on solar energy to lead its net-zero transition, with solar energy accounting for almost 70% of new renewable capacity currently being added. Currently, of the installed capacity for renewables, solar energy comprises more than 40%, with a capacity of 85-95 GW.
Government push for solar energy
The Indian government has been playing a major role with various schemes to improve adoption of solar energy. One of such schemes is PM-KUSUM. The Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM) scheme aims to promote the use of solar energy in agriculture, targeting the installation of 30.8 GW of solar capacity by March 2026. This initiative helps reduce carbon emissions in the agricultural sector by setting up small solar power plants, replacing traditional electric pumps with solar-powered ones, and adding solar components to pumps already connected to the electricity grid. The scheme requires that only India-made solar panels be used, and as of March 2024, it has supported the installation of 165 MW of decentralized solar power plants. PM-KUSUM has three main components: the first aims to add 10 GW of ground-mounted, grid-connected solar power plants; the second aims to install 7 million off-grid solar pumps; and the third focuses on converting 1.78 million existing grid-connected pumps to run on solar energy. To support farmers, the government provides financial assistance, covering 30% of the pump cost in most areas and up to 50% in certain regions.
Apart from this, The Government of India approved the PM Surya Ghar: Muft Bijli Yojana on February 29, 2024, to boost solar rooftop installations and empower residential households to generate their own electricity. With a budget of Rs 75,021 crore, the scheme will run until the fiscal year 2026-27. Under the scheme, households can receive a subsidy covering 60% of the solar unit cost for systems up to 2kW capacity and 40% for additional costs for systems between 2kW and 3kW, with a subsidy cap at 3kW. At current prices, this translates to a subsidy of Rs 30,000 for a 1kW system, Rs 60,000 for a 2kW system, and Rs 78,000 for a 3kW system.
There is increasing focus on improving localisation of solar PV module manufacturing. The Production Linked Incentive (PLI) Scheme for Solar Modules, part of India's National Programme on High-Efficiency Solar PV Modules, aims to establish a GigaWatt (GW)-scale manufacturing capacity for high-efficiency solar modules in India. With a budget of INR 24,000 crore, this scheme encourages domestic production and reinforces India's position as a global leader in solar energy. Under the PLI's first phase (Tranche-I), 8,737 MW of integrated solar capacity was added, while the second phase (Tranche-II) has allocated 39,600 MW of domestic solar PV module manufacturing capacity to 11 companies.
Although the sector has shown tremendous growth over the past years, maintaining such growth comes with its challenges. Scaling the solar energy requires large land acquisition, posing challenges to project timelines and cost. India will need investment of more than $300 bn to achieve its targets. Mobilizing such a level of investment is difficult but can be incentivised by ease of financing and government incentives. Although significant localisation has been achieved, the country's solar sector still imports many components. This dependence on imports could pose a risk to the stability of supply chains and increase costs.