by Renewable Energy World Editors

As India prepares to enter Phase II of its National Solar Mission (NSM), one of the world’s more promising solar markets finds itself at a critical juncture. Much uncertainty lingers in this young market: financing is still challenging, a trade dispute looms, and policy decisions now being hashed out at both national and state levels could swell the country’s market to its lofty goals — or just as easily undercut that momentum, according to a report from Mercom Capital Group’s Raj Prabhu.

India installed just shy of 1 gigawatts (GW) of solar capacity in 2012 (vs. 190 MW in 2011 and just 35 MW in 2010), slightly lower than Mercom had predicted, but Prabhu forecasts another 1.3-1.4 GW for 2013.

A word frequently used in Prabhu’s report to describe the Indian solar market is “uncertain,” with a number of contributing factors. Chief among them is an antidumping investigation against China, Malaysia, Taiwan, and the U.S. over imported solar cells, and subsequent pushback to the WTO about India’s own domestic content requirements. That’s making investors even more skittish than they already are. “It is surprising that a country with approximately 300-400 million people without power, about 9 percent power deficit and about 10 percent peak power shortage, has decided to go this route instead of an ‘all of the above policy’ to meet the power requirement goals,” he notes.

A draft Phase II policy would target 3-9 GW of solar power, with an “aggressive approach” to supporting domestic manufacturing and content requirements. Another new proposal, the Viability Gap Funding, could apply to many projects, which would cover the “gap” in funding (perhaps up to 40 percent of a project’s cost) between what developers estimate as their capital costs to set up a project and the necessary debt and equity.

“With borrowing costs in India in the 13-14 percent range and no technical requirement (anybody can bid) in India; banks consider most of these projects too risky to finance,” Prabhu explains. “The government now sees JNNSM as a public-private partnership. If the policy goes in this direction, solar in India will soon start to resemble other infrastructure/conventional energy projects that haven’t been so successful thus far.”