India set for record solar build despite higher costs

India is on course to install more than 50 GWdc of solar capacity this year, according to Wood Mackenzie, exceeding the previous annual record of 49 GWdc set in 2025.

Developers added 34 GWdc in the first half of the year as they rushed to complete projects before the ALMM-II rule took effect for government-backed schemes.

The policy requires modules made from domestically produced solar cells, marking another step in India's push to build a local solar manufacturing chain. That has lifted demand for Indian-made products but also exposed a shortage in domestic cell production.

As a result, utility-scale project costs are expected to rise. Wood Mackenzie forecasts utility-scale system prices will increase 20% by the fourth quarter of 2026 as supply constraints tighten.

Rush before deadline

The first-half surge reflected a concentrated effort by developers to commission projects before the new sourcing rules applied. A phased reduction in waivers for inter-state transmission charges also prompted companies to bring projects forward.

Those waivers fell from 75% to 50% for projects commissioned from July onward and are due to be removed entirely after July 2028.

Analysts expect installations to slow in the second half of the year as rising module prices and limited cell supply make projects harder to deliver. Even so, temporary waivers for net metering and open access projects through year-end could support additional installations.

India's Ministry of New and Renewable Energy also exempted some near-complete projects from the ALMM-II requirement, provided applications had been submitted by a set cut-off date. That could soften the policy's immediate effect in parts of the market.

Supply shift

While the new framework has curbed direct cell imports from China, it has not removed India's reliance on overseas supply. Instead, sourcing has shifted to Southeast Asia, with imports from Indonesia rising sharply in early 2026.

In the first five months of the year, India imported 5 GW of wafers and 20 GW of cells, the report said. Wafer imports rose 86% from a year earlier as local manufacturers sought inputs for domestic cell production.

India already imposes a 20% basic customs duty on imported cells and modules. A recommendation for anti-dumping duties of up to 30% on Chinese-origin solar cells and modules has added pressure to supply routes, though a final government decision is still pending.

That has made Indonesian-origin supply more attractive to buyers seeking alternatives. At the same time, the shift may draw greater scrutiny if authorities suspect Chinese-made products are being rerouted through other markets.

Wood Mackenzie warned that any delay to the 14 GW of new cell manufacturing capacity now under construction would increase import reliance and could push prices above current forecasts.

Capacity gap

India has expanded module manufacturing faster than cell production, creating a mismatch at the centre of the current squeeze. The report said 130 GW of additional cell capacity is expected to come online by 2029, implying a compound annual growth rate of 49% from the 2026 full-build baseline of 88 GW.

Even with new capacity coming online, the near-term shortfall is expected to persist. Wood Mackenzie projects cell production will reach 29 GW next year, leaving it 21 GW short of average annual module demand of 50 GW.

That imbalance is likely to keep prices high through 2027. Analysts expect utility-scale system prices to fall just 3% between the fourth quarter of 2026 and the fourth quarter of 2027.

Sureet Singh, Research analyst at Wood Mackenzie, said the current disruption reflects the gap between policy ambition and manufacturing readiness.

"India's ALMM-II mandate is a bold step toward building a fully integrated domestic solar supply chain, but cell manufacturing capacity has simply not kept pace with modules," Singh said.

"The near-term cost impact is unavoidable, and developers will need to navigate a difficult transition period before prices stabilise," he added.

Policymakers may yet introduce further exemptions, echoing the earlier rollout of ALMM-I, the report said. A broader local-content agenda is also taking shape, with plans to extend the framework to solar wafers under ALMM-III.

Mathew Thomas, Research analyst at Wood Mackenzie, said the market would need steady policy execution and timely factory build-outs to move through the adjustment.

"Prices are expected to stabilise through 2029 as additional cell capacity comes online, but the transition will require policy consistency and timely execution by manufacturers," Thomas said.

"The rollout of ALMM-II may follow ALMM-I's pattern of multiple exemptions, though the impact should be more contained given greater preparedness among suppliers, developers and policymakers. The MNRE's plan to implement ALMM-III in June 2028, extending the mandate to solar wafers, signals that India's domestic content ambitions are far from complete," he added.