India’s Solar Energy Ambitions: Boom or Bubble?

Aiming to transition to renewable energy sources, India has embarked on an epic move to tap solar, among other renewable, in order to leverage the abundant sunlight in many states due which are hot and arid throughout the year. Indeed, India’s solar ambitions have sparked frenzy among global players drawn to the sector by its ambition of installing solar capacity that can generate 100 gigawatts of power, out of a total capacity of 175 GW from renewable sources by 2022.

Boom Times for the Indian Solar Sector

Having said that, this rush to install such solar capacity has meant that the government is wooing global players to invest in solar and through open bidding that is transparent, solar firms such as Acme have bid down the rates so much that some experts opine that there is a bubble in the making.

Indeed, Acme won the bid to install a mega solar park in the sunny state of Rajasthan at a rate of just Rs. 2.44 which is way lower than the Rs. 4 or Rs. 5 that conventional energy sources such as Coal, Hydro, and Nuclear typically cost.

Green future: Latest Solar power auction at Bhadla Solar Park 3 sets new record with electricity tariff of Rs 2.44/unit.

— Piyush Goyal (@PiyushGoyal) May 12, 2017

While there does not seem to be a bubble in the making yet, the past experiences of another state, Andhra Pradesh, where firms that bid for around the same rate pulled out due to a combination of internal debt issues as well as the real possibility of not realizing the return from their investments.

Sunny Euphoria or Ambitions turning to Bust?

However, given the global market for solar where large investors such as Softbank and Foxconn are pouring funds, the Indian experience certainly is not unique both for the hopes of a boom and fears of a bubble. The reason for this is that in the same manner in which Unicorns such as Uber and the Indian eCommerce firm, Flipkart, attract continuous rounds of funding, solar firms too are also catching the fancy of global investors looking for returns in a low yield world.

Indeed, both Softbank and Foxconn as well as the Indian Telecom giant, Bharti Airtel, are looking to invest Billions of Dollars (around $20 Billion by the former and an undisclosed amount by the latter) in the Indian solar sector which for some is reminiscent of the dotcom era with all its euphoria of boom and subsequent crash which proved that it was a bubble.

Opportunities and Risks

On balance, there are both risks and opportunities in the Indian solar sector. Considering the globally installed capacity of 85 GW, India’s present contribution is indeed miniscule in nature. This means that there is a clear opportunity here.

On the other hand, the government has been sending mixed signals wherein it pledges its commitment to the Paris Climate Change Accord of 2015 and at the same time, it imposes a high GST (Goods and Services Tax) which is indeed a risk.

However, the fact that India has to be cognizant of becoming a dumping ground for imported solar cells means that such caution is warranted wherein the antidumping duties imposed recently can be a potential risk.

Wait and Watch is the Buzzword

Thus, the key aspect here is that one need to wait and watch how Indian solar ambitions play out and at the same time, investors must perform their due diligence before jumping into the sector.