India grabbed the headlines recently when it announced its GDP growth in the fourth quarter of 2015 at 7.3%. For the fiscal year ending March 2016, India should report growth of 7.6%.
Nonetheless, India is still an emerging economy, suffering plenty of growing pains. Among them is the lack of power throughout the country. Roughly 400 million Indians lack access to basic electricity. Many of the rest suffer through all-too-common power outages.
However, Prime Minister Narendra Modi has pledged to provide 24-hour electricity to all of India’s 1.3 billion citizens by the end of his term in 2019. An ambitious target, to say the least.
India Goes Green
The Indian government is targeting an investment of $250 billion into power generation and transmission by the end of the decade. Of that amount, $100 billion would be invested into renewable energies – led by solar power.
Tim Buckley of the Institute for Energy Economics and Financial Analysis has said, “India is executing one of the most radical energy sector transformations ever undertaken.”
Luckily, as Buckley said, “The flow of finance is matching the ambition.” Over $100 billion in financing has been announced over the past 12 months.
India certainly needs it.
India’s electric grid presently has a capacity of less than 300 gigawatts. It can reliably handle roughly 272 gigawatts, less than 30 gigawatts of which is from renewable energy sources.
Going Big in Solar
Modi has targeted 100 gigawatts of solar power installations by 2022 – a goal that seems unreachable – especially if one considers that the goal is more than twice the current capacity of the two leaders in solar power, China and Germany.
But India is forging ahead. Solar projects with nine gigawatts of capacity are already underway. Many of these projects will be online later this year.
The push toward solar energy will make India the fourth-largest market for solar panels over the next two years, according to many estimates.
The good news for India is that the country gets a lot of sun. So it’s logical that solar players from all over the world are moving in. Solar-related investments in India have soared by 80% in 2015.
Abundant sunlight is translating into the ability of future providers of solar power to charge less for electricity than coal-fired power generators in India.
In December, SB Energy won an auction for a 25-year, 350 megawatt solar project in the Indian state of Andhra Pradesh at 4.63 rupees (7 cents) per kilowatt hour.
SB Energy is a joint venture between the large Indian conglomerate Bharti Enterprises, Taiwan tech giant Foxconn (TW:2354), and Japan’s SoftBank Group (OTC:SFTBY). In fact, Softbank has pledged roughly $20 billion to install 20 gigawatts of solar power in India.
Other players are also jostling for position in India’s solar power market. Local firms include India’s Azure Power and Bharat Light & Power. Among the global players entering the Indian market are China’s China Group and Sany Group Co. Ltd., along with Sunedison (N:SUNE).
The latter also recently won a contract in the same state for a 500 megawatt project at the same 4.63 rupee per kilowatt hour rate.
The Future of Solar in India
The real question is whether India – notorious for its bureaucracy – can achieve its lofty goals.
Some smart people think it can.
The International Energy Agency forecasts India will be the driver in solar energy for the next 25 years.
BMI Research, part of the Fitch rating agency, thinks India will get to 45 gigawatts of added solar power capacity by 2024. That’s short of the stated target, but a nine-fold increase nevertheless. Remember, India is trying to do what Germany did. But in half the time.
That means India’s ambitions will be a boon for power equipment supplies in general – and not just solar power panel makers. Power grid modernization, for example, should provide a boost for companies like Switzerland’s ABB (N:ABB), too.
For now at least, India is providing a sunny outlook for the solar industry.
Good investing,
by Tim Maverick