There has been much talk and an equal amount of confusion about the future of India’s solar market. It is not easy to predict the growth rates or future market character, because the market is neither fully in nor fully outside of the government’s hands. It comes down to what one believes in. I am here proposing three perspectives to take into consideration: The “Vision”, the “Reality” and the “Need” perspective.

• India’s government has announced a 100 GW solar target. The only policy that is in line with it the planned revision of RPO targets to 10%
• In reality, the Indian market is already a steady 1 GW growing to 3 GW in the next year
• The real question is, however, how will India satisfy it’s long term energy needs?

Let us first consider the “Vision” perspective: Prime Minister Modi has, on several occasions, stated his commitment to make India a 100 GW solar market in five years’ time (with 40 GW of that coming from distributed generation).  Compare that to the German market, which is only 38 GW to date. Overall, if one adds the supporting grid infrastructure and auxiliary services, this would translate into a $ 100+ billion market opportunity. This was enough to make every investor and bank around the world listen up, which is already a success of sorts.

In line with this goal, the government is currently pushing through parliament an amendment to the Electricity Act (2003) to increase the solar renewable purchase obligations (RPOs) of the discoms and other obligated entities to 10% in five years – roughly in line with the 100 GW target. However, the implementation of the RPO targets will have to be done at the state level. And this shows one of the key limitations to the government’s vision: it needs the states to cooperate. Predictably, there is a sharply divided response from states based on whether they are BJP/NDA ruled or not. Overall, there is currently no credible roadmap to reach the 100 GW target in five years through government incentives.

The second perspective is that of “Reality”. Currently, India has around 3 GW of solar installed, supplying less than 1% of the required power. Over the last two years, India has been a 1 GW per year solar market. This seems to now be ready to rise to 3 GW. This is still far less than what would be required for the 100 GW, but it is a highly respectable growth rate nevertheless.

Altogether, there are around 10 GW of solar projects under development: some through central schemes, some through state schemes, some driven by government-owned enterprises and some by private investors. Margins in the market are still fairly low (EIRR of 15%) and debt costs are still very high (12.5%). The government wanted to reduce the cost of financing and increase the amount of available financing through various channels, but on that front the market was disappointed. The distributed market continues to underperform at no more than 10% of new capacity, its share actually falling. This is a far cry from the 40% share that the government has in mind. The good news is: India has built an excellent ecosystem of market players: especially EPCs and developers/investors. Banks and regulators are catching up.

The third perspective is that of the “Need”. India needs enormous amounts of power in the future. In 2012, it’s total electricity generation was 1,050 TWh. Let us assume that India will experience high economic growth, will industrialize more, will electrify the hundreds of millions still without grid power and will close its grid power deficit. Then, despite efficiency improvements in generation, transmission and consumption of power, India will, according to BRIDGE TO INDIA modeling, need around 7% more power every year for the next 20 years, bringing the total generation to almost 5,000 TWh. That would be slightly more than what China and the US generate today. On a per capita basis, it would take Indians from the tiny 800 kWh per capita of today to around 3,000 kWh in 2035 – which is the current global average.

And what options does India have to meet these requirements? My guess is, it will come down to a “coal-heavy” and a “solar-heavy” scenario. Both have their challenges. Building 100’s of GW of new coal would be immensely polluting, require huge investments into rail and port infrastructure, pollute very large amounts of India’s fresh water, weigh heavily on India’s import bill, drive up global coal prices and presumably bring the global climate to the brink.

If you think about the solar-heavy scenario, consider this: if India were to supply 60% of its 2035 electricity from solar, it would need to build 1,600 GW of solar plants. From today’s base, that would require a 35% growth rate every year. At today’s cell efficiencies, this would require around 1% of India’s total landmass. There would have to be a lot of investment into the grid (balancing, spinning, storage, smart supply and demand management).  Of course, if India were to build anywhere near that much in solar (around 4 times the total global installed capacity), then you can expect the cost of solar and of storage to fall by 50-80%. It could well be the much cheaper option.

Both options sounds staggering – but that is the task before India. And if you put your faith in the solar scenario, you realize that the 100 GW target is not what this game is really about. The question is: which energy system will India – by 2035 the most populous country on the planet – chose to develop.