Will new PV manufacturing policies in the United States, India and the European Union create global PV supply diversification?

The high level of geographical concentration in the global PV supply chain has led the European Union, India and the United States to introduce policy incentives to support domestic PV production. This could result in an unprecedented expansion of PV manufacturing outside of China in the next five years. However, diversifying manufacturing will be possible only if production costs fall to ensure competitiveness with the lowest-cost producers (e.g. in China and ASEAN countries) in both the short and long term.

Recent policy actions in India and the United States aim to increase the competitiveness of domestic manufacturing through subsidies and tax rebates, while the European Union is considering similar steps. India’s PLI scheme and the US IRA offer manufacturers support in different ways. While the PLI furnishes a subsidy to reduce plant investment costs through payments linked with achieved production, the IRA provides a PTCs for the manufacturing of certain equipment, including solar PV modules, cells, wafers and polysilicon through 2032.1

According to estimates, PLI support closes nearly 80% of the investment cost gap between India and the lowest-cost manufacturers in China. However, the one-time subsidy means that manufacturing efficiencies will need to be achieved through economies of scale to maintain long-term competitiveness. Meanwhile, fully monetising manufacturing tax credits in the United States could bring all the country’s segments of solar PV manufacturing to cost parity with the lowest-cost manufacturers.

Favourable solar PV manufacturing policies in India and the United States have spurred multiple new project announcements. In the first phase of India’s PLI programme, almost 9 GW of integrated manufacturing capacity were contracted, and in the second phase the government is expecting to subsidise another 65 GW. In the United States, expansion already planned includes the manufacturing of roughly 9 GW of integrated crystalline silicon (c-Si) modules and 6 GW of thin-film panels. 

In addition to manufacturing subsidies, tariffs on imported PV equipment and local-content premiums encourage project developers to purchase domestically manufactured products. In India, import duties were increased from 15% to 40% for PV modules and to 25% for cells, making local manufacturers significantly more cost-competitive. In addition, all PV modules used in projects subsidised under national support programmes must be manufactured by companies named in the government-maintained list, which currently has only Indian manufacturers.

In the United States, the IRA offers an additional investment or PTCs bonus for the use of domestically produced content. These types of policies significantly boost local manufacturers’ confidence about demand for their products, resulting in more ambitious expansion plans.