Last week, IREDA opened bids received under Production-Linked Incentive (PLI) scheme for solar module manufacturing. Jindal (bid capacity 4 GW, PLI bid of INR 13.9 billion), Shirdi Sai (4 GW, INR 18.8 billion), Reliance (4 GW, INR 19.2 billion) and Adani (4 GW, INR 36 billion) are the top bidders based on their technical score – computed using assigned rating matrix for level of vertical integration and total manufacturing capacity. First Solar (bid capacity 3.3 GW, PLI bid of INR 17.5 billion) was the only other company to bid with full backward integration. Since total subsidy budget is capped at INR 45 billion (USD 600 million), Jindal, Shirdi Sai and Reliance are the three eligible winners under the prescribed bucket filling methodology.

• The tender was heavily oversubscribed with many new companies seeking an opportunistic entry into the manufacturing business;
• Announcement of final winners is expected to be delayed pending government decision to expand the scheme;
• Effective subsidy payout of about 6-7% of first five year revenues may not be sufficiently attractive for marginal bidders in view of strict performance conditions;

The tender was heavily oversubscribed (5.4x), receiving bids aggregating 54.8 GW from 18 participants. Interestingly, none of the three top bidders and six others have any prior experience in solar manufacturing. Most existing manufacturers (TATA Power, Waaree, Vikram, Premier, Emmvee and Jupiter) have bid only for cell-module capacity. There are only two international bidders – First Solar and CubicPV, both US-based.

Figure: Bids received under PLI scheme for solar module manufacturing

Source: BRIDGE TO INDIA research
Note: PLI bid amounts are not available for CubicPV and Jupiter Solar.

Announcement of final winners and PLI allocation is expected to take about three months as MNRE is believed to be seeking approvals to expand the scheme budget by up to three times. The intention is to accommodate all wafer and polysilicon manufacturing bids aggregating 32.3 GW capacity with total PLI bid amount of INR 152 billion (USD 2 billion) to realise complete self-sufficiency in module manufacturing. Some increase in budget should definitely be possible since government is very keen to scale up manufacturing and there are unused funds available from other PLI schemes. We continue to believe that overall fundamentals of the scheme are not attractive particularly for smaller bidders. Total effective subsidy payout (see box below) is estimated at only about 20% of capital investment with an average payment period of about 4 years after investment, or about 6% of revenues in the first five years of operations. In turn, the bidders are required to comply with strict conditions on implementation timetable, domestic value addition and technology with stiff penalties for failure to do so. The need to demonstrate equity funding availability (INR 24.2 billion, or USD 323 million, for a 4 GW polysilicon-module manufacturing bid) within three months of award is also expected to be challenging for many bidders.

Reliance, Adani, First Solar and L&T are the four most serious contenders. A few others are expected to review their decision after final government decision on scheme size and likely PLI allocation. But most others are likely to ultimately decide that it is not viable for them to set up new manufacturing facilities.