Ernst & Young Ranks India Second Among Top Countries with Solar Development Potential

We hear a lot about China’s growing dominance in the renewable energy market, but what about the other Asian economic powerhouse, India? The country has one of the fastest growing economies in the world, yet is plagued with blackouts. According to a recent study by the International Energy Agency, one-third of the country’s 1.2 billion people have no access to electricity. Yet, the country is well-endowed with sun, making it a ripe market for solar.

The Indian government is keen on economic growth. Their current five-year plan projects annual growth of 9% per year. And the population is growing at a quick 1.3% annually — growth that’s not projected to slow any time in the near future. India’s next five-year plan calls for a doubling of infrastructure investment from $500 million to $1 trillion.

Government support will be necessary for solar to compete with conventional power in India since, according to KPMG’s 2011 report “A Rising Sun,” it costs twice as much to produce. But, conventional power costs are rising 4-5% per year whereas solar costs are plummeting 7% per year.

India relies heavily on coal as 71% of its energy needs come from the dirty fossil fuel. To meet energy supply shortages, the nation has been hungrily buying up coal and other fossil fuels from outside the country. It’s a problem the government wants to fix.

So to keep up with economic and population growth while improving the country’s energy security, the federal government has created the National Solar Mission. The project positions solar at the heart of the country’s renewable energy plan. The goal is to install 20GW of solar energy by 2022, making it the country’s number one renewable energy source.

The Indian government’s penchant for red tape has been holding the country back from faster renewable energy growth. The government wants contracts to go to local manufacturers, but in light of rapidly declining solar module costs, Indian firms can’t supply at a low enough cost to compete. A problem that stretches beyond India, as has recently been seen with the Solyndra bankruptcy in the U.S. To do business in India, foreign companies have to hook up with a local partner. Once in the country, they then have to face arduous land usage, pollution control, and other approval processes.

India’s high unemployment and growing industrial and service labor force (more women are entering the workforce and agricultural productivity has been increasing, causing farmers to seek other work) mean increasingly competitive manufacturing, installation, and maintenance costs for solar producers. The National Manufacturing Policy set the ambitious goal of boosting manufacturing’s percentage of GDP from 16% to 25% for an employment increase of 100 million by 2022. The country also launched the National Skill Development Programme to train 500 million people by that same date. As India retools its massive and largely unemployed workforce to handle the kind of jobs the solar power industry needs, the country will have no problems competing in the renewable energy market as long as its government reforms.

The KPMG report marks these next few years as crucial in India’s solar power development. It recommends that the government further improve its support for solar by extending funding to cash-strapped power utilities to handle the higher costs of solar energy, aggressively support private developers in their efforts, and assist banks to better lend money to players in this sector.

With fossil fuels increasing in price and solar decreasing, a country as intent on growth as India with its rich solar potential and hundreds of millions sitting around in the dark, solar power will likely dominate the nation’s energy landscape in years to come. Ernst & Young, in its Renewable Energy Country Attractiveness Indices, ranks India the second most attractive country in the world to invest in solar. Indeed, the vision of a developing nation powering itself with its own renewable resources serves as an inspiration for the whole world.