Only locally manufactured solar cells can be used in domestic, commercial and industrial solar projects starting June 1, according to a Union government mandate.

Cells — components that convert sunlight into electricity — are the building blocks of solar modules, the panels used to generate power.

This domestic cell sourcing mandate is aimed at reducing India’s dependence on imports and strengthening the domestic solar manufacturing ecosystem.

But it has also raised concerns. India has a large solar module manufacturing base, nearly 200 gigawatts (GW) per annum. But the manufacturing capacity of cells, the primary constituents of these modules, is far lower at around 30 GW. This means much of the module manufacturing capacity has been built upon imported cells.  

The new move, therefore, could disproportionately affect smaller solar module manufacturers which, unlike larger companies, may not manufacture their own cells. Industry insiders have also raised concerns that the mismatch in cell and module manufacturing capacity could lead to potential market consolidation. 

Here’s a look at the move and how it could affect the larger solar power ecosystem.

First, we need to understand how solar panels are manufactured. The process begins with polysilicon, which is processed into ingots. These ingots are sliced into wafers, which, in turn, are used to manufacture solar cells. These cells are subsequently assembled into modules, or panels.

Under the new mandate, all “net-metering” and “open access” solar projects commissioned after June 1 will have to use domestically manufactured solar cells. 

Net-metering projects largely refer to rooftop solar installations — such as those under the PM Surya Ghar: Muft Bijli Yojana — where consumers can offset electricity bills by supplying surplus power back to the grid. 

Open access projects mainly cater to commercial and industrial consumers procuring renewable energy directly from developers. 

Although developers had sought an extension of the deadline, the government clarified on May 25 that there would be “no blanket” relief. 

Limited relaxations would instead be granted on a case-by-case basis for projects where module installation had already been completed or where developers have already made significant progress, such as land acquisition, connectivity arrangements or installation of solar modules.

The new mandate has sparked concerns among module manufacturers, particularly non-integrated players — those without internal cell manufacturing facilities. 

Industry executives cautioned that such companies could face significant supply risks as they would now be forced to procure domestically manufactured cells from larger competitors that also operate in the module market, potentially creating an uneven playing field.

According to experts, the timing of the transition has added to the stress. India’s solar module manufacturers are currently grappling with overcapacity and weakening export opportunities amid steep US tariff barriers.  Against solar capacity installations of around 45 GW in 2025–26, India’s annual solar module production is estimated at nearly 60–65 GW, highlighting the growing oversupply concerns in the sector. Industry sources said capacity utilisation levels at several module assembly plants are currently hovering around 30–40%.

“The prices of domestically manufactured cells are expected to rise after the mandate comes into force. As a result, companies with integrated manufacturing facilities may prioritise cell production, given the stronger margins and assured demand,” an industry insider said, adding that some degree of market consolidation now appears inevitable during the transition phase. 

Alpesh Dave, vice president at Surat-based Goldi Solar, told The Indian Express that while standalone module manufacturers are facing significant pressure on revenues, companies with integrated cell and module manufacturing facilities are in a much stronger position.

“Cell manufacturers in India are currently commanding very high margins because of the limited domestic supply and lack of sufficient competition. They are charging margins of at least 20-30%,” Dave said.

Nitin Aggarwal, CEO of Rajasthan Solar Association, which represents solar equipment manufacturers from the state, said that the new mandate could pose a serious survival challenge for a significant section of the industry, barring a handful of large integrated players. 

“Except for four or five integrated manufacturers, the policy could put more than 125 module manufacturers and over 500 ancillary industries at risk,” Aggarwal said.

According to him, the sharp price differential between modules using domestically manufactured cells and those based on imported cells has emerged as a major concern for the industry.

“A module manufactured using domestically sourced cells costs around 80% more than those using imported cells. As the June 1 deadline approached, this price gap has widened further to nearly 120%,” he said.

Aggarwal said that the limited domestic cell manufacturing capacity could further strain the sector by creating supply shortages and increasing cost pressures for non-integrated manufacturers. 

“The mandate should ideally be implemented only after India’s domestic cell manufacturing capacity scales up to around 150 GW to ensure adequate supply availability for the industry,” he added.

‘Sign of relief’

However, a divergent view is also emerging within the industry, with several manufacturers viewing the new mandate as a relief of sorts and offering a strong policy push for the investments being made in India’s domestic solar manufacturing ecosystem.

They maintain that concerns over limited domestic cell manufacturing capacity are overstated, especially because large utility-scale solar projects bid out before August 31, 2025 have been exempted from the domestic sourcing requirement for solar cells. According to them, this significantly reduces immediate pressure on domestic cell supplies.

“So, it would be wrong to say that there is a limited capacity. We have enough cell capacity and more is coming in the next 12 months,” Vinay Rustagi, Chief Business Officer, Premier Energies Limited, one of the country’s leading integrated solar cell and module manufacturers, told The Indian Express.

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“For the domestic manufacturers, it’s a big sigh of relief, because we have invested huge amounts of capital and effort to increase the capacities, invest in the latest technologies, build capabilities, etc….. Any relaxation would have been very bad news for investors, financiers, and lenders in the sector. Because in such a heavily capital intensive sector, we need to have a strong policy commitment,” he added. 

Ankit Jain, Vice President, Co Group Head – Corporate Ratings, ICRA Ltd said that India’s domestic solar cell manufacturing capacity is expected to scale up sharply over the next few years based on expansion plans announced by various players.

“India’s total cell manufacturing capacity is expected to rise to nearly 100 GW by December 2027….this is likely to be sufficient to meet the domestic demand comfortably,” Jain said. 

According to him, the new domestic cell sourcing norms have effectively pushed pure-play module manufacturers to integrate backwards into cell manufacturing to remain compliant. 

“Overall, the policy provides a tailwind and supports the significant investments made in the domestic solar cell manufacturing ecosystem,” he added.