Manufacturing Challenges in Non-Fossil Fuel Capacity Expansion

Examining the hurdles in battery cell manufacturing and solar technology amid ambitious renewable energy goals.

Gopi

•January 28, 2026•5 mins read

Clean energy ambition meets industrial transformation

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1. India’s Non-Fossil Energy Transition and the Role of PLI Schemes

India has set an ambitious target of installing 500 GW of non-fossil fuel capacity by 2030, positioning renewable energy manufacturing as a strategic pillar of economic growth and climate action. Achieving this target is critical for energy security, reduced import dependence, and meeting international climate commitments.

To operationalise this ambition, the government has relied heavily on Production Linked Incentive (PLI) schemes, which reward firms based on actual sales performance rather than upfront subsidies. The relative success of the PLI scheme in telecom manufacturing has encouraged policymakers to replicate the model in green technologies.

However, the renewable energy manufacturing ecosystem is structurally more complex than telecom. It involves deeper technology stacks, longer gestation periods, and high-capital upstream processes. If these structural differences are not adequately addressed, policy ambition risks outpacing implementation capacity.

The governance logic is that incentive-based industrial policy must align with sectoral realities; ignoring this leads to underutilised fiscal support and delayed energy transition outcomes.

2. Solar Photovoltaic PLI: Downstream Success and Upstream Bottlenecks

The PLI scheme for high-efficiency solar photovoltaics (PV) aims to build an integrated domestic value chain, from raw materials to finished modules. This is essential to reduce dependence on imports and stabilise renewable energy supply.

Downstream activities, particularly module assembly, have shown relatively strong progress, achieving 56% of their specific targets by mid-2025. This indicates that lower-technology, assembly-oriented segments respond well to financial incentives.

In contrast, upstream segments remain severely constrained. Polysilicon manufacturing has achieved only 14%, and wafer manufacturing just 10%, of their respective targets. These stages are capital-intensive, technologically complex, and heavily dominated by global incumbents, especially from East Asia.

The persistence of upstream weaknesses implies continued reliance on imported raw materials and specialised expertise. This undermines the core objective of strategic autonomy in clean energy manufacturing.

The development logic suggests that without addressing upstream capability gaps, downstream gains remain fragile; neglecting this risks perpetuating import dependence despite domestic assembly capacity.

Key Statistics:

Target: Integrated solar PV manufacturing under PLI
Module assembly achievement: 56%
Polysilicon achievement: 14%
Wafer achievement: 10%

3. Advanced Chemistry Cell (ACC) Battery PLI: Ambition–Implementation Gap

Battery manufacturing is central to India’s electric vehicle (EV) transition and grid-scale energy storage. Accordingly, the government announced a PLI scheme to establish 50 GWh of domestic battery cell capacity, with a fiscal outlay of ₹18,000 crore.

Despite this, progress has been limited. By late 2025, only 1.4 GWh, or 2.8% of the targeted capacity, had been commissioned. This indicates a significant gap between policy design and on-ground feasibility.

A major constraint arises from stringent domestic value addition (DVA) requirements, mandating 25% within two years and 60% within five years. While intended to deepen localisation, these thresholds are difficult to meet given India’s limited prior experience in cell chemistry and materials science.

Additional challenges include the technical complexity of “gigafactory” construction and restrictions on visas for Chinese technical experts, who dominate global battery manufacturing know-how. These factors collectively slow project execution and increase compliance risks.

The governance lesson is that localisation mandates must be sequenced with capability development; otherwise, they deter investment and delay strategic industrial outcomes.

Key Statistics:

Target battery capacity: 50 GWh
Commissioned by late 2025: 1.4 GWh (2.8%)
PLI outlay: ₹18,000 crore
DVA requirement: 25% in 2 years, 60% in 5 years

4. Limits of Capital-Centric Industrial Policy in High-Technology Sectors

The underlying assumption of the PLI framework is that capital support and market incentives are sufficient to catalyse domestic manufacturing. While valid for assembly-driven sectors, this assumption weakens in high-technology industries.

Solar upstream manufacturing and battery cell production require decades of research investment, cumulative learning, and a highly trained workforce. These capabilities cannot be rapidly substituted through fiscal incentives alone.

Expectations of rapid technology transfer through international partnerships have also shown limits. Such transfers are capital-intensive, slow to internalise, and do not guarantee immediate productivity gains. Consequently, several firms face penalties for missing PLI timelines, reflecting misaligned expectations.

Overemphasis on the net worth of bidding firms, rather than their technological depth and human capital, further exacerbates implementation risks.

From a development perspective, ignoring capability-building leads to policy inefficiency, fiscal stress, and delayed structural transformation of the economy.

5. Rethinking PLI Design: Towards Capability-Oriented Manufacturing

The experience of green technology PLIs highlights the need for recalibration rather than abandonment. For upstream-intensive sectors, policy design must prioritise technical expertise, knowledge ecosystems, and risk-sharing mechanisms.

The government is considering additional capital subsidies to de-risk high-capex upstream projects. While helpful, these must be complemented by institutional support for research, skill development, and controlled technology partnerships.

A reorientation of PLI criteria towards technological readiness, workforce capability, and phased localisation can improve outcomes. Such an approach aligns industrial policy with long-term manufacturing competitiveness rather than short-term capacity addition.

The governance rationale is that sustainable industrialisation depends on institutions and skills as much as incentives; overlooking this delays strategic self-reliance.

Policy Measures Suggested:

Rebalance PLI criteria from net worth to technical capability
Phased and flexible localisation timelines
Complementary support for R&D and workforce training
Targeted de-risking of upstream, high-capex segments

Conclusion

India’s green manufacturing push under the PLI framework reflects strategic intent but faces structural constraints in high-technology sectors. Bridging the gap between ambition and implementation requires moving beyond capital incentives towards sustained capability-building. Aligning industrial policy with technological realities will be essential for achieving long-term energy security, climate goals, and global manufacturing competitiveness.

Quick Q&A

Everything you need to know

Definition and purpose: The Production Linked Incentive (PLI) scheme is a government initiative that provides financial incentives to companies that achieve specific production or sales targets. In the context of renewable energy, PLI schemes aim to accelerate domestic manufacturing of high-efficiency solar photovoltaics and advanced chemistry cell batteries.

Strategic objective: By offering predetermined financial rewards based on performance, the PLI scheme incentivises private investment in India’s clean energy sector. The goal is to transform India from a net importer of green technology into a global manufacturing hub, particularly for solar modules and battery storage.

Current progress: While downstream solar module assembly has achieved 56% of its target by mid-2025, critical upstream segments such as polysilicon and wafer manufacturing lag far behind, at 14% and 10% respectively. Similarly, domestic battery cell manufacturing has reached only 2.8% of the 50 GWh target, highlighting the implementation challenges in high-technology areas.

Technical complexity: Upstream manufacturing of polysilicon, wafers, and advanced battery cells requires specialised technology and infrastructure. These segments are highly capital-intensive and involve sophisticated research and workforce training, which cannot be rapidly scaled.

Dependence on foreign expertise: A significant barrier is the restriction on Chinese technical experts due to visa and geopolitical considerations. Since many companies rely on international technology transfer, the absence of skilled personnel delays project commissioning.

Policy design limitations: The PLI scheme emphasises capital support but does not sufficiently prioritise technical expertise and capability. Consequently, while downstream assembly is progressing well, the upstream segments remain bottlenecked, highlighting a gap between policy ambition and ground-level execution.

Enhanced technology transfer: Facilitating international partnerships and easing regulatory barriers for skilled experts can accelerate the adoption of advanced battery manufacturing techniques. For instance, collaboration with global firms could help set up gigafactories efficiently.

Focus on expertise over net worth: Revising PLI selection criteria to prioritise technical know-how, project management, and R&D capabilities rather than just financial capacity can ensure better project execution.

Long-term investment and training: Building domestic technical expertise through workforce training, R&D investments, and academic-industry partnerships is crucial. India must plan for sustained skill development to achieve ambitious battery manufacturing goals, ensuring that capital subsidies translate into tangible production outcomes.

Upstream bottlenecks: While module assembly has achieved more than half of its target, upstream processes like polysilicon and wafer production remain below 15% completion. These are the most technology-intensive segments and require specialised equipment and expertise.

Capital intensity: High initial investment and long gestation periods for upstream projects make companies cautious. Even with PLI incentives, financial risk is substantial.

Skill and technology gaps: India’s dependence on imported raw materials and technical knowledge limits rapid scale-up. Without addressing these gaps, the downstream progress will not be fully complemented by domestic upstream capabilities, undermining overall renewable energy manufacturing goals.

Battery manufacturing: The PLI scheme aims to establish 50 GWh of domestic battery cell production with an outlay of ₹18,000 crore. By late 2025, only 1.4 GWh (2.8% of the target) had been commissioned.

Contributing factors: Strict domestic value addition requirements (25% in two years, 60% in five years) create compliance pressure. Additionally, visa restrictions on Chinese technical experts delay the setup of gigafactories. Mega corporates relying on technology transfer face capital-intensive projects that do not always yield near-term results.

Implication: These delays exemplify the gap between policy ambition and execution, highlighting the need to prioritise technical capability and operational support rather than just financial incentives in PLI-backed projects.

Strengths: The PLI scheme provides performance-linked incentives that reduce investment risk and attract private capital. It has shown success in downstream solar module assembly and telecom manufacturing, demonstrating the potential to scale domestic production.

Limitations: For high-technology segments like polysilicon, wafer, and battery cell manufacturing, capital support alone is insufficient. The projects are highly complex, requiring skilled workforce, technology transfers, and robust infrastructure. Implementation delays reveal a mismatch between policy design and operational realities.

Way forward: To enhance effectiveness, the scheme should prioritise technical expertise, R&D, and strategic partnerships. Additional support mechanisms such as capital subsidies for high-capex upstream projects and streamlined regulatory approvals can help bridge the gap between policy intent and execution.

Lesson 1 – Technical capability matters: The slow pace of upstream solar and battery projects demonstrates that financial incentives alone cannot substitute for technical expertise and operational know-how.

Lesson 2 – Infrastructure and skill development: Long-term investment in R&D, workforce training, and specialised infrastructure is essential to achieve ambitious targets. Policy design must include mechanisms to build these capabilities alongside monetary support.

Lesson 3 – Flexibility and strategic support: Visa restrictions, technology transfer delays, and high-capex requirements highlight the need for flexible policies that account for geopolitical and operational challenges. Future schemes should prioritise expertise, partnerships, and risk-sharing mechanisms to accelerate India’s journey towards 500 GW non-fossil fuel capacity by 2030.