India is phasing out the use of imported solar cells in new renewable projects by January 2027. This shift ends a profitable practice where integrated manufacturers sold locally made cells at a premium to competitors. The move aims to boost domestic production but may squeeze profit margins for companies that relied on selling cells as a separate revenue stream.
Detailed Coverage
The landscape for India's solar manufacturing sector is undergoing a significant policy shift. Government mandates now require the use of domestically produced solar cells in new renewable energy projects, a move designed to reduce reliance on imported components and strengthen the local supply chain. This policy change specifically targets the practice of companies that both manufacture solar modules and produce their own cells.
The Shift from Cell Arbitrage
Until now, integrated solar companies enjoyed a dual benefit. They could use their own capacity to meet internal needs while selling excess domestic cells to module-only manufacturers who lacked cell-making facilities. Because domestic cells are required for DCR, or Domestic Content Requirement, projects—which qualify for government subsidies—these cells have commanded higher prices than imported alternatives. Industry data suggests that the profit margin, or EBITDA per watt-peak, for selling domestic cells has been roughly 14% to 15% higher than that of selling DCR-compliant modules alone. As the government mandates stricter domestic cell usage, this secondary revenue stream from selling cells to rivals is expected to shrink.
Capacity Imbalance and Price Gaps
There is currently a notable gap between India's solar assembly capacity and its domestic cell production capability. Recent industry estimates indicate that while module assembly capacity has surged to nearly 210 gigawatts, domestic cell production capacity remains just over 30 gigawatts. This mismatch has created a significant price difference. For instance, DCR-compliant modules, which must use locally made cells, have recently been priced around ₹21-22 per watt. In contrast, non-DCR panels, which often rely on imported cells, trade at roughly ₹15-16 per watt. These higher prices for DCR modules have helped integrated players maintain strong margins, but the new policy will force the industry to rapidly scale up domestic cell production to meet the total demand for subsidized projects.
Timeline and Impact on Future Projects
The government has set a firm deadline to complete this transition. While government-backed projects bid after August 2025 are already under the mandate, private installations including net-metering and open access projects have been given until the end of this year to comply. By January 1, 2027, the use of domestic cells will be mandatory for all relevant projects. This leaves a narrowing window for companies that have relied on the price difference between imported and domestic cells. Investors should monitor how these manufacturers manage their transition to full domestic cell usage. The key for these companies will be their ability to scale up their own cell manufacturing plants to offset the lost profit from selling cells to third-party competitors. The long-term financial impact will depend on whether the overall demand for domestic modules can offset the loss of the cell-selling premium.