BMI View: Aggressive bidding and the rapid fall in tariff prices in India’s solar power auctions have the potential to jeopardise the economic feasibility of the project pipeline, presenting a downside risk to our bullish solar power forecasts for the country. Furthermore, we highlight SunEdison’s vast project pipeline in India as potentially under threat, owing to the company’s financial distress and the low price at which projects have been contracted.
We have previously highlighted a number of positive fundamentals that underpin the growth potential in India’s solar market, primarily the government’s unyielding commitment to the sector, the conducive regulatory framework (particularly the success of India’s reverse auction system) and the improved funding availability for project developers from both the Indian government and multilateral organisations. With these conditions in place, India has become one of the key global bright spots for renewable energy investment and the project pipeline has strengthened notably, in line with the growing investor interest in the market ( see ‘Forecasts Raised As Solar Boom Is Sustained’, November 23 2015). In light of these factors, we expect strong growth in non-hydropower renewables capacity over our 10-year forecast period to 2025, particularly in solar power; we forecast installed solar power capacity to grow by an annual average of 28.4% between 2015 and 2025, totalling over 52GW by 2025.
That said, we also believe that the strong willingness of investors to enter the market can represent a risk to the development of the Indian solar sector. Indeed, the strong competition during the auction process and the resultant aggressive bidding from prospective developers has the potential to drive down tariff prices to unfeasibly low levels; this means that some of the projects contracted could actually not be realised – a dynamic that creates a downside risk to our bullish renewables capacity forecasts for India.