Why India Has Become The Sunniest Land For Solar Opportunities

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Includes: CSIQ, GCPEF, JASO, SUNEQ, TSL
by: Sneha Shah

Summary

India has the greatest potential in the world for solar power development, with low per-capita power availability and a huge population.

India's government is strongly supporting the sector, which has led to a surge in growth.

The high growth trajectory is expected to continue not only for the very long term — the next 25 to 30 years.

India has the largest potential for solar power in the world, because the country suffers from huge power cuts, and more than 300 million of its citizens do not have access to power. Also, unlike China, which has around 1,000 GW of power capacity, India's power capacity is still around 280 GW. As the per-capita income and power availability increases, India should install massive amounts of solar capacity going forward.

The country is making rapid strides towards implementing policies favoring solar installations. India is set to become the 4th largest market for solar panels in the next 2 years. The government of India has set a huge 175GW renewable energy target by 2022, out of which 100 GW will come from solar energy and 60 GW from wind energy. The 100 GW solar target has been further broken up into 60 GW for large-scale utility installations and 40 GW for rooftop solar installations.

The new pro-renewable-energy Modi government has been busy shaping new programs and policies that will help promote solar power in the country. The solar power tariff in India has come down, to as low as INR 4.34 (about USD $0.06) a unit from around INR 12 (around USD $0.30) a unit in 2011. Solar investments in India have risen by 80% in 2015. IEA has predicted that India will become the biggest growth driver for solar energy in the next 25 years.

It is not only important for India to make its solar plan a success, but it is also beneficial for the other countries as well that India has a strong successful solar sector. If India relies on fossil fuels for powering its citizens, then greenhouse gases will increase tremendously given India's large size. India's per capita greenhouse gas emissions is almost 1/5th that of China. As the Indian economy grows, the per capita emission would reach at least the Chinese level, which might be catastrophic for the planet. A number of countries are supporting India's initiative in boosting solar power.

1) Extremely strong Government support

The Indian government has set a target of 100 GW of solar energy generation by 2022 and has already implemented a number of policies to meet that target (solar parks, rooftop solar policy, investment subsidies for government owned companies and defence sector etc.). Numerous tenders are being issued by state governments, the central government (Solar Energy Corporation of India Ltd.) and state run utility NPTC. The capacity in these tenders total more than 10 GW, which will lead to the creation of a massive pipeline of projects. Private developers have shown a huge interest in these tenders, with most of them seeing extremely high competition at low prices. Not only the Indian players, but foreign developers and private equity backed developers are also being very aggressive in bidding for large capacities.

2) Rapidly falling solar power tariffs has made it competitive with thermal power

Indian solar tariffs have fallen so rapidly that they are now competing with thermal power and have edged out wind and gas based power on prices. Solar power has become the default energy source for Indian power needs after thermal power. Also given that the time taken to put up a solar power plant is less than a year compared to 4-6 years for a thermal power plant, it has become the preferred way to generate power in energy deficient states such as Andhra Pradesh, Karnataka and Telangana. It is being predicted that solar power will become cheaper than thermal power in the next 4-5 years.

3) Rapid increase in solar power projects across India

India's largest power utility, NTPC has been conducting several reverse auctions across the Indian states. NTPC plans to set up 10,000 MW of solar power capacity on its own. As per the Indian government, approximately 4345 MW will be commissioned in between March 2015 and March 2016 with Tamil Nadu and Telangana estimated to install 1214 MW and 1166 MW under respective State policies by March 2016. Total cumulative grid connected solar power projects as of September 2015 was ~4200 MW. More than 10 GW of new projects are expected to be commissioned in FY 2016-17 in India. Huge tenders are expected to be opened by various state agencies like SECI, NTPC, others like Coal India, IREDA, THDC etc. 2015 saw 2 GW of solar capacity being added in India and if the recent large tenders by state and central agencies get executed in time, this is expected to increase by 5x times to around 10 GW by 2017.

4) Major power reforms (UDAY) and dollar denominated tariff bids to further boost the sector

The new government has played an instrumental role in reforming the power sector and also bringing down the cost of solar, in order to make it more affordable. UDAY (or Ujwal DISCOM Assurance Yojana) is one of the biggest power sector reforms undertaken by India to restructure its chronically sick power distribution sector. UDAY will focus on reducing the cost of power and interest cost of discoms, while improving their operational efficiencies. The government of India has been encouraging foreign developers to invest in India, by issuing tenders with tariffs to be denominated in foreign currencies such as dollar and yen. This will make the bids more competitive as the hedging cost of foreign loans will be taken care by the government. These dollar denominated tariff bids are further expected to bring down costs from the already low levels.

5) Taking the leadership in the global solar sector

The Modi government has initiated the "International Solar Alliance" which is a grouping of more than 100 countries, with the aim to accelerate the deployment of solar energy. These nations most of which lie in high solar radiation countries will collaborate in finance, technology and policy making to deploy more than $1 trillion in developing solar power capacities. This new alliance was announced during the recent Paris climate change talks and the secretariat will be based in Gurgaon, India. The foundation stone was laid down by the French and Indian leaders recently. The government has received pledges from a number of countries such as USA and Germany to invest billions of dollars into India's solar power sector. Japan has also agreed to help India attain its right energy mix. Softbank has already committed to develop 10,000 MW of solar power in India.

Downside Risks

Though it looks like a lot is happening in the Indian landscape, project execution remains weak with most projects facing time delays. Many foreign manufacturers such as JA Solar (NASDAQ:JASO), Trina Solar (NYSE:TSL), GCL Poly (OTCPK:GCPEF), Canadian Solar (NASDAQ:CSIQ) and SunEdison (SUNE) had announced their intention to set up large factories in India, but none of the projects have seen much progress. In comparison, these companies have rapidly set up facilities in Thailand and Malaysia. The much hyped JV of SunEdison with Adani Group in India also did not formalize. There are also major issues regarding the ability of the power grid to transmit power, as well the ability of power distribution companies to buy solar power. Funding has been a serious constraint for India's booming solar sector, as it is expected that 100 GW of solar power may require almost $150 billion in funds for generation as well as transmission & distribution.

Conclusion

India has seen investments grow rapidly with $5.6 billion invested in the solar energy sector. This is almost half of the total RE investments made in India. The country has set a target to install 10 GW in 2017, which is a growth of 900% from 2014 (when ~1 GW was installed). Funding has been a serious constraint for India's booming solar sector. The Indian power minister has been trying to structurally reform India's power sector and introduce innovative ways of financing. Two Indian state owned power financing companies PFC and REC will invest $16 billion of cash into green power plants. There is a massive opportunity in India's solar sector not over the next 4-5 years, but for the next 25-30 years. India has become a land of rising opportunities for solar and investors can make a lot of money if they pick the right investment options.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.