India's Ministry of Finance urges caution in lending for solar modules as a glut is looming, a letter shows.

A letter from the ministry reviewed by revealed that the ministry urged banks to be cautious when financing new manufacturing capacities of solar photovoltaic modules, due to the possibility of oversupply on the local market.

Over the last three years, several Indian companies have increased their solar module production capacity with the aim of exporting to the United States.

The U.S. has increased its tariffs on Indian components made in China and is more concerned about the quality of these parts. This has led to a drop in exports.

In a letter, the Ministry of Finance told the Finance Ministry to "advise lenders to adopt a calibrated approach and be well informed when evaluating proposals for additional standalone solar module manufacturing capacity."

The finance ministry and the clean energy ministry have not responded to a comment request.

The Indian Ministry of Clean Energy has for the first time acknowledged the danger of an oversupply of solar panels and modules in the local solar market.

The ministry stated that India's capacity to manufacture solar modules is expected to increase by a third in the coming years to 200 gigawatts. Cell production may grow fourfold to 100 GW and exceed the local demand.

The Ministry suggested that lenders prioritise the funding of integrated facilities capable of producing solar cells, ingots wafers, and polysilicon, to reduce India's dependence on imports from China.

The clean energy ministry cited an All India Solar Industries Association letter asking the Indian Banks' Association not to fund new, unviable modules manufacturing projects in order to prevent future bankruptcy. (Reporting and editing by Nidhi verma and Jane Merriman.)

(source: Reuters)