India is currently at a crucial stage in its solar energy journey. Over the past few years, the country has made rapid progress in expanding its solar capacity. Strong policy support, government initiatives, and infrastructure development have provided a solid foundation for the sector.
However, the picture is not entirely straightforward. While capacity continues to grow, challenges such as oversupply, transmission constraints, low capacity utilisation, and manufacturing pressures are slowing the pace of sustainable growth. As a result, India’s solar boom presents both significant opportunities and important risks for investors.
Let us take a closer look at India’s solar sector and understand why, despite strong policy support and infrastructure development, investors need to balance optimism with caution.
What’s Happening?
India is currently the world’s third-largest renewable energy market, but the country’s electricity generation mix has not completely transformed yet. Although solar capacity is growing rapidly, nearly 70% of India’s electricity still comes from fossil fuels. In other words, India is undergoing a major energy transition where growth remains strong, but the challenges are equally significant.
Over the last 12 years, India’s solar capacity has increased from 2.8 gigawatts to nearly 155 gigawatts. In FY26, the country recorded a record annual addition of 44.61 gigawatts, significantly exceeding the government’s target of 34 gigawatts. By March 2026, India’s total installed solar capacity had reached 150.26 gigawatts, highlighting solar energy’s growing role in the country’s energy strategy.
In FY26, solar growth was not limited to large-scale projects. Decentralised solar models such as rooftop installations, PM-KUSUM solar pumps, and rural solar projects contributed 16.3 gigawatts, accounting for 36% of total capacity additions. Power Purchase Agreements (PPAs) contributed 34%, while the commercial and industrial segment accounted for the remaining 30%.
Challenges Behind Solar Growth
India’s solar sector is expanding rapidly, but the challenge now extends beyond adding capacity to ensuring that existing capacity is utilised efficiently.
By the end of 2025, India’s solar module manufacturing capacity had reached approximately 210 gigawatts, while domestic demand stood at only 40-45 gigawatts. As a result, average plant capacity utilisation remained around 40%.
Oversupply, margin pressure, and the transition from older MonoPERC technology to advanced technologies such as TOPCon have emerged as major challenges for manufacturers. Export dependence is another concern, as nearly 97% of India’s US$ 1.12 billion solar photovoltaic exports in FY25 were directed to the United States.
Another challenge relates to energy storage. Solar power generation is highest during the day, while electricity demand typically peaks during the evening. This makes Battery Energy Storage Systems (BESS) increasingly important. However, in 2025, against an estimated battery demand of 28 GWh, domestic cell manufacturing capacity stood at only 4 GWh.
According to the National Electricity Plan 2023, India’s energy storage requirement could rise to 411.4 GWh by 2031-32 and further increase to 2,380 GWh by 2047. This suggests that the next phase of solar growth will depend as much on storage, grid infrastructure, and technological advancement as on generation capacity itself.
Manufacturing and Policy Support
Government initiatives have played a crucial role in strengthening India’s solar ecosystem. Schemes such as PM Surya Ghar Muft Bijli Yojana, PM-KUSUM, the Production Linked Incentive (PLI) Scheme, and the Approved List of Models and Manufacturers (ALMM) have supported both domestic demand and local manufacturing.
By January 2026, approximately 2.27 million households had been covered under the PM Surya Ghar scheme. The Union Budget 2026-27 allocated Rs 22,000 crore to the programme, raising expectations of further growth in rooftop solar adoption.
Over the last decade, India’s rooftop solar capacity has increased from less than 3 gigawatts to 23.5 gigawatts by March 2026. While this growth is encouraging, it still falls short of the sector’s full potential.
According to industry experts, inconsistent implementation of net metering policies and the availability of subsidised or free electricity in several states continue to limit rooftop solar adoption. As a result, future growth will depend not only on subsidies but also on better policy execution and clearer communication of the economic benefits to consumers.
What Does This Mean for Investors?
The solar sector represents a significant opportunity for India in terms of energy security, employment generation, and industrial development. Decentralised solar systems, rooftop installations, and rural solar projects can create opportunities for MSMEs and local businesses.
The manufacturing segment may also witness consolidation going forward. Companies facing weak margins and excess capacity could come under pressure, while businesses with stronger balance sheets, advanced technology, and larger scale may gain market share.
However, investors should avoid making decisions based solely on the broader solar theme. Risks such as oversupply, US trade policies, transmission infrastructure bottlenecks, technology transitions, and fluctuations in power prices need to be carefully considered.
From a long-term perspective, strong policy support, rising domestic demand, and India’s energy transition ambitions continue to support the sector’s growth outlook. However, in the near term, pressure on margins and low capacity utilisation may remain key challenges for many companies.
What’s Next?
As of 30 April 2026, India’s solar capacity stood at 154.24 gigawatts, total renewable energy capacity had reached 279.25 gigawatts, and total non-fossil fuel capacity was 288.03 gigawatts.
The focus now is not only on increasing installed capacity but also on building an affordable, reliable, and resilient clean energy system. India’s solar capacity could reach 280-300 gigawatts by 2030, but achieving this target would require annual installations of around 50 gigawatts.
Over the longer term, India aims to reach 509 gigawatts of solar capacity, 155 gigawatts of wind capacity, and 174 gigawatts/888 GWh of energy storage capacity by 2035-36. This includes 80 gigawatts of Battery Energy Storage Systems (BESS) and 94 gigawatts of pumped storage capacity.
As a result, the next phase of growth will be driven not only by solar module manufacturing but also by upstream integration, technology upgrades, energy storage development, grid modernisation, and diversification into global export markets.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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