India's ambitious solar energy expansion program has hit a significant roadblock, as domestic solar panel factories begin shutting down amid acute component shortages triggered by new protectionist legislation, Reuters reported on July 23, 2026, citing unnamed industry sources. The disruption stems from a regulatory mandate that took effect on June 1, requiring Indian solar module makers to use only domestically produced solar cells in their panels. The policy, designed to reduce India's heavy reliance on Chinese solar technology imports, has instead precipitated a manufacturing crisis that is putting approximately $4 billion in investments at risk, according to industry sources cited by Reuters.
Since the legislation came into force, close to one third of India's small and medium solar module manufacturers have ceased operations. This segment of the industry is particularly significant, as it accounts for 60% of the country's total solar module production capacity. The impact on output is expected to be severe.
One solar panel manufacturer quoted by Reuters warned that production of solar modules could fall from 3.2 gigawatts to just 1 gigawatt as a direct result of the new rules. "We have suffered a lot due to the domestic cell unavailability for the past three months," the manufacturer said. The root cause of the crisis lies in a structural mismatch within India's solar supply chain.
While the country's total solar module manufacturing capacity stands at a substantial 200 gigawatts, domestic solar cell manufacturing capacity amounts to only 27 gigawatts. Prior to the new law, imports from China accounted for over 90% of the solar cells used by Indian module makers. Industry sources estimate the annual supply gap between local cell production capacity and actual demand at approximately 2.6 gigawatts.
The industry had warned the government in advance of these risks. When the mandate was under consideration, solar manufacturers cautioned that the requirement to use only domestically produced cells would lead to higher module prices and slow down the rollout of solar capacity across the country. Those warnings have now materialized into an operational crisis.
The fallout threatens to undermine India's broader renewable energy ambitions. The government has set a target of reaching 500 gigawatts of non-hydrocarbon generation capacity by 2030. Solar energy currently represents 29% of the country's non-hydrocarbon generation capacity, according to Reuters.
Plans called for expanding solar capacity from its current 162 gigawatts to over 292 gigawatts by 2030, a target that is now in jeopardy given the manufacturing sector's difficulties. The episode underscores the complexity of energy supply chain localization strategies, particularly in sectors where global manufacturing ecosystems have become deeply integrated. India's attempt to decouple from Chinese solar component imports has, at least in the near term, disrupted domestic production rather than stimulated it, raising questions about the pace and sequencing of industrial policy in the renewable energy transition.
Source: Oilprice.com / Reuters, July 23, 2026. Article by Irina Slav.
Source: oilprice.com