The potential for solar energy capacity in India is enormous. The majority of the country’s tropical landmass is located optimally for peak solar radiation; the World Bank has described India as having “among the best conditions in the world to capture and use solar energy”.

The Indian Government’s Ministry of New and Renewable Energy has pegged the country’s total solar power potential at nearly 750GW, with 142GW of solar resource available in the state of Rajasthan alone.

Although total potential is hardly indicative of the eventual solar output that could be achieved in India – the average capacity utilisation factor for solar PV hovers around the 20% mark – it nevertheless signals the opportunity for immense growth in the sector.

Solar comprised nearly 40% of new capacity additions in India last year, adding 7.1GW and pushing the country’s total installed solar capacity to around 14.7GW. That still leaves around 85GW to add if the 100GW goal is to be met by 2023, with the government estimating that around $160bn in capital will be required to hit its overall renewables targets.   

Significant financing from commercial and multinational investment banks is helping to drive growth. In 2017, the European Investment Bank (EIB) announced a partnership with India’s YES Bank, with each partner setting aside $200m in loans to help finance solar and wind projects in the country. This comes after the EIB, in the same year, released a $214m loan extension to the State Bank of India to support five key grid-scale solar energy projects that are due for completion by 2020.

The World Bank, meanwhile, committed to providing $1bn in lending across FY 2017, its highest level of support for solar power in any country. The bank is also backing the International Solar Alliance, formed after the Paris Climate Conference in 2015, which could become a key financial facilitator for Indian solar in years to come.

This is driving strong growth in large-scale solar parks, so much so that the government last year doubled its solar park capacity goal from 20GW to 40GW by 2020, with 50 parks planned in the next two years and government investment of $1.2bn. A recent example is the massive 2GW Pavagada Solar Park in the state of Karnataka, which inaugurated its 600MW first phase at the beginning of March.

Of course, a massive solar push across such a large landmass with complex regulations does not come without challenges. The first is growing fear over a potential Indian ‘solar bubble’. While falling solar electricity prices have been touted as an example of India’s changing energy landscape, some observers have raised concerns that prices offered in recent solar auctions are not sustainable.

A consortium led by Indian developer Acme Solar won the licence to build the 500MW Bhadla Solar Park in the state of Rajasthan in May 2017, with a bid guaranteeing a price of just $0.04 per kilowatt hour sold. For some, this is a product of short-term thinking that could leave projects at risk of collapse.

“There is no logic to these bids,” ReNew Power chief executive Sumant Sinha, whose company was outbid on the Bhadla project, told the Financial Times in November. “Companies are becoming desperate not to miss out.”

Defenders of increasingly low bids argue that this is a reflection of massive solar enthusiasm, and of falling costs for developers, principally through significant cost reductions for Chinese-made solar PV panels. But the general reliance on Chinese manufacturers is also a potential weakness, as it ties India’s solar development fortunes to unpredictable panel prices.

Last year, for example, solar panel prices reversed their steady decline and actually increased from $0.30 per watt to $0.35 due to tension around solar panel manufacturing competition and the possibility of anti-dumping tariffs on Chinese-made panels.

The government’s new goods and services tax (GST) has also increased prices on key solar construction materials. Even Acme Solar founder and chairman Manoj Kumar Upadhyay admitted to the FT in November that his company would have bid differently for Bhadla in May if these variables had been clear.

“If we were bidding today, what with the GST and higher solar prices, we would not offer what we did in May,” Upadhyay said. “I would have factored in more of a safety factor if I had known about these changes.”

Nurturing Indian solar panel manufacturing – which currently represents just over 10% of the local solar module market – is a major priority to help control solar development costs, but domestic manufacturers have been struggling to compete with Chinese firms, both technically and economically.

The Ministry of New and Renewable Energy described Indian solar PV manufacturing capacity as “obsolete” in December, and the government is working on a scheme to help build a more advanced and competitive solar manufacturing base. 

In the coming years, building domestic capacity and improving the technologies and economies of scale of Indian manufacturers will be a defining issue for solar in India.

This is especially the case for small-scale and rooftop solar, which is particularly price-sensitive but a vital part of India’s solar goals and its efforts to provide access for the 20% of the country’s population that still lives without electricity, especially in remote rural areas.

But with a wealth of new solar projects and technologies emerging in India – from floating solar to building solar plants on Indian Railways land – the country remains a prime location for an industry that is as significant to the world’s wider climate change goals as it is to powering India’s domestic market.