India Joins The Solar PV Club


Charles Morand

One of the – if not THE – most popular debates in solar PV circles is about when exactly the electricity produced by solar PV systems will reach “grid-parity“, or become competitive with like-generation fuels (i.e. non-baseload) on a stand-alone basis (i.e. no feed-in tariffs, mandates or rebates).

A lot of the time, these discussions slip into arcane sub-debates about module costs, as expressed on a dollar per watt basis, and how far they need to fall for solar PV to be competitive. But module costs are only one part of the equation; inverter, installation and other balance-of-plant costs can make up to 50% of the installed cost of a system, and the local solar regimes, cell efficiency, interest rates and system orientation can all impact the levelized cost of the power produced, and thus its relative cost position on the grid.

While such discussions are most definitely intellectually stimulating, the fact remains that the solar PV industry is, by-and-large, heavily dependent on regulatory incentives for growth. Recent figures by REN21 (p. 24 of the PDF document) demonstrate the extent of this dependency. In 2005, Japan accounted for ~24% of new installations and ~35% of total installed capacity for grid-tied solar PV globally, while for Spain the numbers were ~2% and ~2%, respectively. By the end of 2008, Japan made up ~5% of new installations and ~15% of installed capacity, whereas Spain accounted for ~48% and ~26%, respectively. What changed in those three years? Japan canned its residential incentive in 2006 and Spain implemented its feed-in tariff in 2004. Now, both countries have made 180-degree turns, with Spain canning and Japan re-instating. I expect investment flows to reverse. 

Reaching grid parity in certain regions with high wholesale power prices is not going to change that situation overnight – last year, McKinsey & Co published a forecast in which they estimate that economic demand for solar PV will begin outpacing policy-driven demand by about 2015. By 2020, the authors believe, policy-driven demand will still account for a little under a third of total global demand. Regulatory incentives are thus going to account for a substantial portion of installed solar PV capacity for at least the next decade.

That is why solar PV investors should be elated that India has finally decided to join the solar club by planning to have its own targets and incentives announced by September. Early information points to a non-trivial target of 20 GW installed by 2020 (Germany had about 5.4 in 2008), with 1 to 1.5 GW installed by 2012. The scope for solar PV growth in India is massive, especially growth in distributed solar as over 600 million people – mostly in rural areas – currently don’t have access to electricity.

As of yet, few details have been made public on the upcoming policy so it is difficult to gauge what this will mean for the solar PV sector. However, if India’s solar ambitions turn out to be as big as their IT ambitions, this could prove a welcomed boost for the industry.  

I am finding it difficult to pick stocks in the solar PV sector for three reasons: (1) the intense sell-side focus – exemplified by the fact that every shop on the Street now has a solar PV analyst – makes it very difficult to gain and exploit an informational advantage; (2) stocks tend to be highly volatile, with the success stories trading at astronomical multiples (e.g. First Solar) and the firms experiencing difficulties getting destroyed (e.g. Timminco); and (3) the industry remains relatively young, with new entrants and emerging technologies continually threatening established market positions.

My favorite way to play this sector and macro events like the India announcement thus remains through one of the two solar power ETFs: the Claymore/Mac Global Solar Index ETF (TAN) or the Market Vectors/Van Eck Global Solar Energy ETF (KWT) . While volatility and high multiples remain a factor for the ETFs, they nonetheless eliminate much of the firm-level risk.

I took a long position in TAN in early March, and this has done quite well for me so far. My time line there was 18 to 24 months and that remains the case today. However, the announcement by the Indian government in September could provide near-term momentum for these two ETFs, especially if the program is to be implemented sooner rather than later.

DISCLOSURE: Author is long TAN       


  1. It seems worth noting that, at least in America, talking about grid-parity is a little deceptive insofar as oil and coal power has received government subsidies and tax benefits for a long time and still enjoy such special treatment. Alternative energies are competing with a source of energy already heavily incentivized. There are some great interviews with major figures active in the development and use of alternative energies at,com_sectionex/Itemid,200076/id,8/view,category/#catid92 which I have found useful on these subjects.

  2. Bill:
    Are you talking about utilities or firms involved in the natural gas and coal business proper?
    If the latter – which I suspect is who you are talking about when referring to tax breaks and other subsidies – it’s unclear that the government’s fiscal largess has resulted in lower prices for consumers. Because the markets for natural gas and coal are global and firms are generally price takers, any tax incentive or other subsidies at the national or regional levels are typically internalized by companies and used to increase shareholder returns rather being passed down to consumers. In other words, these subsidies are nonsensical and it is disturbing indeed that they are allowed to endure.
    To claim that subsidies to the natural gas and coal industries in the US have led to artificially depressed grid prices is thus wrong. Would there be substantially less supply, and thus higher prices, without subsidies? That’s possible and it’s a question I can’t answer, although I suspect that the answer is no. I suspect that what would happen is that although the marginal supplier might go under, the bulk of the industry would do just fine although shareholders would make less money.
    If you removed all subsidies and tax breaks to the US gas and coal industries tomorrow you wouldn’t see wholesale power prices shoot up dramatically in response and solar PV become competitive overnight. That is why people far more knowledgeable on these issues than I am, like Severin Borenstein, argue that subsidies should go to R&D to help improve efficiencies and develop cheaper technologies, rather than to solar energy production or capacity which does little to decrease costs (in fact, generous subsidies might have the opposite effect by creating sudden demand ahead of industry capacity to meet that demand).


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