India plans for cleantech ramp-up, but faces gaps in innovation, infrastructure and policy risks

Increasing concerns about energy security and urges to restore global manufacturing are spreading. In the past years, all major cleantech markets announced local content requirements, which were followed by some emerging markets.

India's ambition to become a manufacturing hub for clean energy technology is driven by its goals to reduce carbon emissions and boost economic growth. The government has been actively promoting initiatives like the Production-Linked Incentive scheme to attract investments in solar modules and batteries. This strategy aims not only to meet domestic demand but also to position India as a key player in the global clean energy supply chain.

Policies driving India’s clean energy manufacturing

India has set itself big goals for clean energy technology by 2030. Various policies have been introduced to support local manufacturing and achieve these targets. These include tariffs on imported goods -- such as basic customs duties, and goods and services tax -- along with approved manufacturer and model lists. The government also offers direct incentives, such as PLI, to further encourage domestic production and innovation in the clean energy sector.

Driven by these favorable policies, India's capacity for various clean energy technologies is projected to grow substantially by 2030. Capacity for PV modules is expected to reach 107 GW, wind nacelles 20 GW, battery cells 69 GWh and electrolyzers 8 GW equivalent. This growth would enable full self-sufficiency in solar PV and wind and over 90% self-sufficiency in battery cells by 2030.

New openings for Indian cleantech exports

By 2023, the demand for cleantech components, including solar PV modules, batteries, wind turbines and electrolyzers in India, was largely met through imports, with 65% coming from China in terms of revenue. Meanwhile, India's limited local production targeted Western countries and fetched premium prices.

With the dominance of Chinese cleantech components, many markets are increasingly implementing trade barriers and local content requirements. For instance, the US has imposed high antidumping and countervailing tariffs on solar PV cell and module imports from China and is currently investigating the capacities of Chinese manufacturers in Southeast Asia. As a result, India has significantly boosted its module shipments to the US, for a total of 5 GW in 2023, 7.4 times the total its exports in 2022, thereby capturing market share from Chinese PV modules.

Meanwhile, the wind sector is currently experiencing a significant shift in its competitive dynamics. The once-dominant Western turbine manufacturers are now struggling to secure orders, as the market is increasingly dominated by two domestic companies and a leading Chinese vendor. This shift has led to a unique challenge: while India has a vast turbine manufacturing capacity, much of it remains underutilized. At the same time, a smaller portion of this capacity is operating near its limit.

Some Western turbine manufacturers have already repurposed their Indian factories to focus on exports, while others are considering it. However, this shift requires additional investments from these companies, which are already facing financial difficulties. Their primary focus remains on more profitable markets in Europe and North America, making the commitment to transform their Indian operations a difficult decision.

Cost and product mix among India’s challenges

Even a considerable increase in manufacturing capacity may not significantly enhance the renewable installations needed to meet India's ambitious goals. The cleantech sector in India is still in its early development, facing numerous challenges, such as a lack of technological innovation, skilled labor and raw materials as well as incomplete infrastructure and risks of inconsistent and delayed policy implementations.

In the solar PV sector, India encounters substantial hurdles in achieving its desired polysilicon and wafer production levels. As a result, the country will remain reliant on imports to bridge gaps in the manufacturing process, which undermines its cost competitiveness.

India's preferred wind turbine product mix also doesn't naturally align with global standards, so additional investments would be needed to make its manufacturing base suitable for exports. Moreover, as India embarks on offshore wind development, further manufacturing investments may be required in an already oversupplied market since the existing onshore production infrastructure is not optimized to support offshore wind projects. However, the scale of these investments will ultimately depend on which company secures the offshore turbine contracts.

Local battery manufacturers entering India's battery industry will need additional time to develop and enhance their production capabilities. Manufacturing operations in the country are currently primarily limited to battery pack assembly. These manufacturers face significant obstacles, including high capital expenditures, technological complexities and challenges in securing critical raw materials. Lacking a battery supply chain ecosystem, it is more economical for India to import lithium-ion cell batteries from other countries.

Meanwhile, India's hydrogen targets appear overly ambitious, similar to trends seen globally, with considerable "hype" surrounding hydrogen. Although India's electrolyzer capacity is projected to grow significantly by 2030, the electrolytic hydrogen sector remains largely underdeveloped, necessitating a foundational approach. Furthermore, the electrolyzer is merely one component of a hydrogen facility; numerous additional elements, such as transformers and renewable energy sources like solar and wind, are critical. These supplementary components often delay project timelines, complicating the overall development process.

Further reading: Cleantech manufacturing series: India

Analysis by Ankita Chauhan, Katherine Leydon, Indra Mukherjee, Rida Rambli , Baldesh Singh, Yee Jie Wong