India is on track to add a record 50 gigawatts of solar power capacity in 2026, fueled by the government’s new domestic manufacturing mandate. While this is a major push for local industry, a shortage of solar cells is expected to drive up system prices by nearly 20% before the year ends. Investors should monitor how developers manage rising project costs and potential supply delays.
India is set to reach a new milestone in 2026, with annual solar power installations projected to exceed 50 gigawatts. This rapid growth, which includes 34 gigawatts added in just the first half of the year, represents a 38% increase compared to the same period in 2025. This surge was driven by a rush to complete projects before the June 1, 2026, deadline for the new Approved List of Models and Manufacturers (ALMM) mandate.
The Impact of Domestic Sourcing Rules
The ALMM mandate requires that government-supported solar projects use modules made with domestically manufactured solar cells. While this policy is a strategic move to build an integrated supply chain in India, it has created a significant supply imbalance. Currently, the domestic capacity for manufacturing solar cells is not enough to keep up with the demand for solar modules. This mismatch creates a temporary bottleneck, as developers face limited options for sourcing compliant parts.
Rising Costs for Developers
This supply crunch is leading to higher procurement costs for solar developers and engineering, procurement, and construction (EPC) companies. Analysts expect utility-scale solar system prices to rise by approximately 20% by the fourth quarter of 2026. This increase could put pressure on profit margins for developers who are already managing tight budgets for large-scale energy projects. If the cost of essential components stays high, it may create difficulties for smaller players in the sector.
Transmission Waivers and Policy Changes
Beyond manufacturing mandates, the industry is also adjusting to shifts in power transmission policies. Waivers for inter-state transmission charges, which helped reduce costs for solar projects, were reduced from 75% to 50% starting in July 2026. These waivers are scheduled for a complete phase-out after July 2028. The removal of these benefits, combined with rising component prices, adds another layer of cost that developers must factor into their future project planning.
Import Dynamics and Future Outlook
To manage the cell shortage, India’s import sources have shifted. While the ALMM mandate has reduced direct cell imports from China, imports from Southeast Asia, particularly Indonesia, have increased as companies look for alternative supplies. However, Indian manufacturing policies continue to face international scrutiny, and the industry must navigate the risk of global trade investigations.
Looking ahead, the market expects supply and demand to stabilize by 2029 as more domestic cell manufacturing capacity comes online. The key monitorable for investors in the coming quarters will be whether companies can execute their planned manufacturing expansions on time, or if continued reliance on imports—and the associated cost pressures—will persist longer than expected.