Most people think that India's modus operandi is red tape. Slow bureaucracy has been a hallmark of Indian government for decades, after all. With the election of India's new prime minister, Narendra Modi, however, India's method of operation could be something radically different.
Some investors are already calling Narendra Modi India's Shinzo Abe, someone who radically changes the rules and just gets things done. India's benchmark index, Sensex, has been similarly enthusiastic, rallying 17% this year to all-time highs.
With Modi's election and Sensex's rally, it seems the market is hinting that the Indian government will successfully execute on its many policy goals going forward.
What Modi means for solar
One of the implications of a Modi administration is that India may become a gigantic solar market in the coming years.
The Indian government has long recognized solar's potential to solve many of the nation's energy problems but has never really executed. The country has 1.2 billion people, 400 million of whom still lack electricity, and suffers from the occasional brownout/blackout that destroys economic productivity. Yet the country has only managed to install 2 GW of solar capacity so far.
In Narendra Modi, India has a leader with a proven track record of executing. As chief minister of India's Gujarat state, Modi was one of the first Indian policy makers to encourage state utilities to aggressively adopt solar. Because of Modi's policies, Gujarat's solar capacity now represents 40% of India's total installed solar capacity.
Many market participants believe Modi will do the same for solar in India as Modi did for solar in Gujarat. With Modi's previous experience dealing with state utilities, many believe India is much more likely to achieve its ambitious target of deploying 10 GW of capacity by 2017 and 20 GW of capacity by 2022.
If India keeps its borders open to solar imports, India's ambitious solar targets will likely add to the bottom lines of many leading solar companies.
India's open borders to solar imports may not last long, however, due to India's protectionist slant. Unlike other countries that like importing cheap panels, India wants to foster its domestic solar manufacturing industry. To achieve its aim, India is considering levying protectionist duties on solar imports from both the U.S. and China.
If India were to adopt protectionist policies, the country would not be the next great solar market for international solar producers. The protectionist duties would hurt Chinese companies such as Trina Solar Limited (NYSE: TSL) and Yingli Green Energy (NYSE: YGE), which account for nearly 70% of India's total installed capacity as well as First Solar (FSLR -1.39%), which currently has 22% market share.
The international solar companies would likely lose significant market share to Indian manufacturers under that scenario.
The bottom line
The Indian government has long realized solar's potential to solve many of the nation's problems but has thus far failed to adopt solar in a meaningful way. With the election of Narendra Modi, India now has a leader with a proven record of execution in solar.
India is at a crossroad, however. It can choose to adopt protectionist policies to foster its domestic solar industry, or it can choose to import the cheapest panels possible and use the savings to focus on being good at doing something else.
If India doesn't levy protectionist duties on solar imports, the country could indeed become the next great solar market.
